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CONTENTSIntroduction............................................................................................................ 3CHAPTER 1: Laying the Foundations.................................................................. 5• Understanding the meaning of LED• Understanding what it means to prepare for and exercise LED• Knowing what processes are involved in constructing an LED Strategy• Knowing how to mobilise, research and assemble an LED Strategy• Understanding the possible components and variations within an LED strategyCHAPTER 2: Understanding the Policy Context for LED ................................. 19• Knowledge of the constitutional and statutory mandates for LED• Deﬁning responsibilities of councillors for Local Economic Development – distinguishing the roles of councillors and ofﬁcials in municipalities• Issues that district councillors need to be aware of in working to support LED• Understanding what district municipalities can do to stimulate the Local Economy by examining the extent and nature of what can be done to create jobs from the local level.CHAPTER 3: The Building Blocks of LED Strategies ....................................... 29• Understanding the local economy – its sectors and resources• Strategic choices which promote or hinder poverty and job creation• Identifying competitive advantage in the country, region, district and local municipality• Understanding concepts such as value addition, multipliers, leverage, backward and forward linkages, complementarities (of labour) and clustering.• Fleshing out opportunities for job creation and increased community involvement in infrastructure and private sector development e.g. subcontracting and tendering• Identifying the major blockages to investment and poverty reductionCHAPTER 4: Planning for LED ........................................................................... 49• The components of LED strategies• Strategic planning sessions – critical outcomes and decisions• Mobilising for participation and partnerships• Assigning territorial and sectoral roles across partners in LED processes• Using LED plans to improving public conﬁdence in municipalities

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CHAPTER 5: Drawing up Action Plans .............................................................. 69• Key Components of Action Plans• Foundations for Implementation:• Partnerships, Networking and Role Clariﬁcation• Resources• Management• Some Components of Action Plans: Intensiﬁcation of Enterprise Support Sustainable Developmental Community Investment Integrated Development Programmes or IDPsCHAPTER 6: Vigilance is the Price of Prosperity ........................................... 113• Understanding the need for consistent and regular monitoring and evaluation• Building knowledge of sound M and E techniques• Deciding how to measure i.e. the complexities of measuring development• Assigning responsibility for data collection and analysis• Managing change processes in LEDCHAPTER 7: Funding the LED Process .......................................................... 139Range of ﬁnancial mechanisms to different types of local economic development projects.Glossary of LED Terms ..................................................................................... 146LED Resources .................................................................................................. 150

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Toolkit for Local Economic Development Page 3 IntroductionThis draft toolkit is designed as a practical set of resources to supportlocal government ofﬁcials, councillors and LED practitioners.LED is a relatively new ﬁeld internationally and it is even more recentin the South African context. The ideas and suggestions in this toolkittherefore tackle issues from a basic and fundamental point of view.In devising a framework and this toolkit, national government, inparticular, the department of provincial and local government, areacknowledging the need for all actors at all levels of South Africansociety to shape their environment and economic destiny. The natureof the challenges facing us suggests that creativity and innovation areneeded at all levels and from all groups in the country. Thus LED callsfor ‘all hands on deck.’The South African economy and spatial arrangements carry manyhangovers from the past which still need substantive attention andprogrammes if we are to build an equitable society. LED practitionersand planners in particular, will need to apply their minds carefully if weare to build equity and unleash opportunities.As this toolkit is the foundation for LED, it acknowledges that localplayers in an economy are best placed to determine appropriatestrategies to build and grow their economies. There are however a

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Page 4 Toolkit for Local Economic Developmentmultitude of resources, both technical and ﬁnancial which are availableto local governments. Chapter 7 points to number of these. Linked tothese resources is the notion that LED is integrally related to policiesof national and provincial government.The chapters and order of the text are designed to take practitionersand others through the logical steps in assembling and implementingLED structures and plans.One of the areas that is not dealt with in this toolkit is the substantivedifferences among city, town and rural economies. These differencesare alluded to though readers will need to unpack the speciﬁcities ofthese types of economies in practice.We wish you great creativity and success in assembling and testingyour LED interventions. Ofﬁcials of dplg’s LED unit look forward toyour responses and comments.Comments can be sent to:Mr Alistair FraySenior Managerdplg535 Proes StreetPretoriaEmail: alistairf@dplg.gov.zaTel: (012) 301-1058Fax: (012) 323-3550

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Toolkit for Local Economic Development Page 5 CHAPTER 1 LAYING THE FOUNDATIONS • Understanding the meaning of LED • Understanding what it means to prepare for and exercise LED • Knowing what processes are involved in constructing an LED Strategy • Knowing how to mobilise, research and assemble an LED Strategy • Understanding the possible components and variations within an LED strategy

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Page 6 Toolkit for Local Economic Development Roots of Local Economic Development (LED)The concept of local economicdevelopment arose in the context Globalisation is the process throughof globalisation. As trade expanded which trade barriers have been reducedacross the world, many producers of allowing goods and services to be traded more freely around the worldgoods and services faced competitionfrom producers and countries thatwere able to provide goods and services at lower prices and sometimes betterquality. Globalisation brings both opportunities and threats. The opportunities liein expanding trade beyond the boundaries of local and regional and nationalboundaries through competitive production techniques, value addition to localproduce and innovation in local economies. The threats lie in our ability to adapt toglobal economic forces and in having to produce goods and services at costs whichcan compete on international markets. This means that the technology used andstandards of production need to meet international requirements. South Africa is a young democracy that has a conservative economy historywhich led to our economy being strongly rooted in commodities (e.g. minerals andagricultural produce). While we do have some competence in the motor industryand other forms of manufacturing, we still need to work on being more stronglycompetitive at an international scale. During the apartheid era, the majority ofpeople were deprived of land, skills and opportunities to establish businesses. As aresult, we still face deep rooted challenges in re-building the economic competenceof the country. Some of our disadvantages are that labour in South Africa is not highly skilledand machinery and equipment sometimes have to be imported. Skilled labourand equipment together build productivity which enable industries to compete.Furthermore, currency ﬂuctuations and a weak Rand can imply that imports canincrease in price which then increases productions costs. In adopting LED as a strategy, the South African government is encouraging peopleat all levels of society to participate in economic decision making which explorescreativity and builds entrepreneurship at Currency Fluctuations refers to theall levels of society. Given the challenges rise and fall in the value of the randthat we face in job creation and poverty against other currencies.eradication, LED builds a platform forbringing ‘all hands on deck’ in working towards solutions. It is an acknowledgementthat creativity, innovation and involvement of all groups are needed and can

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Toolkit for Local Economic Development Page 7contribute to solutions. Another important reason for adopting LED as a policy is the push to democratiseat all levels. LED can be described as Decentralisation refers to functionsa decentralisation mechanism which of government being handed overallows local and regional governments other tiers of government, e.g. local orand their communities (business, provincial governmentlabour and society) to shape theirenvironments, improve competitiveness in their local economies and ensure thatinfrastructure and services work well for industry and society. By adopting LEDstrategies people in a local economy can work out ways of attracting investment togrow the local economy and also start businesses which will retain income in theirarea. In Chapter 2 we will explore the policy context for LED in South Africa in moredepth. What is local economic development (LED)?As we implied above, LED recognises that people, business and governmentsat local levels are best able to restructure economic situations that will stimulategrowth that is required to create jobs and thereby reduce poverty. In South Africait is important that LED processes work towards social and economic equality.Under apartheid, the majority of South Africans were deprived of skills andaccess to opportunities. This has led to widespread poverty and underdevelopmentamong black South Africa. Thus building equity in society is an essential aspect ofdevelopment processes. LED is the result of joint Private enterprise in a local economy includes all large medium, small and micro enterprises.planning by a municipality, This expanded view means that large miningits community and business companies and factories as well the smallestsectors. This means that all spaza shop or stall at a taxi rank is part ofeconomic forces in the local private enterprise in a local economy.situation have to be broughton board to identify resources, understand needs and work out plans to ﬁnd thebest ways of making the local economy fully functional, investor friendly andcompetitively productive. As a starting point it is important to recognise the sources of income and wealthin society. Successful private enterprise and productive public-private partnershipscreate wealth in local communities.

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Page 8 Toolkit for Local Economic Development A positive or enabling business environment means that infrastructural services must be reliable and that businesses must have convenient access to markets and essential inputs into the business. It is also important that the regulatory environment should be user-friendly. Suitable sites for business premises need to be available to encourage businesses to remain in or to make new investments in a local economy. Workers with the skills required for local sectors and industry within manageable distance are also an asset to the business environment. The safety of workers, raw materials and equipment in business are also important to encourage businesses to continue investing in an economy. It is important to recognise and cater for the support needs of business, i.e. ﬁnancial services, business development consultants and other services that will enable businesses to become more efﬁcient, productive and competitive. Private enterprise however, requires a positive business enabling environment todeliver prosperity.• Municipal government has a key role in creating a favourable environment for business development and success.• By its nature, local economic development is a partnership between the business sector, community interests and municipal government. ��������� ���������� ���������• LED is usually strategically planned by local government along with its public (other levels and agencies of government), private sector and community partners.

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Toolkit for Local Economic Development Page 9 Investment is an important element of LED. It involves new investment by government and the private sector. Government investment would include construction of transport, power, water and telecommunications infrastructure. This creates a base for businesses and households to function well. Investment by businesses means that new factories/plants, mines, farms, service industries or trading premises are established, or new equipment is purchased. Both types of investment are essential foundations for growth. While businesses purchasing new equipment can lead to job creation, it can also lead to jobs being lost if new technology needs less labour. In the context of LED, it means that planners need to think of ways to attract new businesses to absorb the jobs that are lost. Businesses work to maximise proﬁts and therefore planning for employment of people in a local economy is an important part of LED. Investing in skills and continuous learning in businesses is also essential for building and maintaining comparative and competitive advantage.• Implementation is carried out by the public, private and non-governmental sectors according to their abilities and strengths. GOVERNMENT Each parner in CO the LED process brings SS resources and has needs to be MM E fulfilled. LED plans capture the needs SIN and reflect how these needs will be met. UN BU ITI ES LED How to prepare for and effect LEDEach local situation has a different set of conditions that either improve or reducethe prospects for local economic development, and it is these conditions that Sharing a joint vision by all sectors is key to a successful LED Strategy

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Page 10 Toolkit for Local Economic Developmentdetermine the relative advantage of an area in its ability to attract, generate andretain investment. A community’s economic, social and physical resources will guide the design of,and approach to, the implementation of a local economic development strategy. Tobuild a strong local economy, good practice proves that each community shouldundertake joint information gathering processes to understand the nature andstructure of the local economy. This should be followed by analyses of the area’sstrengths, weaknesses, opportunities and threats. This will serve to highlight thekey issues and opportunities facing the local economy. Economic Resources Combinations of land, minerals, skills and money Social Resources Organisations, NGOs and educational institutions Physical Resources Buildings and infrastructure as well as places of natural and historical interest Processes involved in constructing an LED StrategyIdeally, the development of an LED strategy will be an integral part of a broaderstrategic planning process for a sub-national region, city, town or rural area. Effectivestrategic planning ensures that priority issues are addressed and limited resourcesare well targeted. The stepped planning process should be tailored to complement,and correspond with, other local planning processes. The process is not rigid andshould be adapted to meet the needs of the individual community. ���������������������������������������� ���������������������� ���������������������������������� �������������������������������������������������������� ���������������������������������������������������

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Toolkit for Local Economic Development Page 11 In South Africa this means that national, provincial and local plans and policiesshould be linked and complement each other. In South Africa there are ��������������������������� at least three types of local economies: cities, towns and rural areas. Each of these �������������������������������������������� types has different economic structures, resources and �������������� types of economic activity. The economies of cities usually have a complex �������������������������������������������������� and varied mix of mining, processing, services, tradeand industries. Towns may have mining, processing, trade and feeder industries intofarming or mining. Rural areas may be dominated by farming though there couldmines close by as well. The factors which differentiates cities, towns and ruralareas is agglomeration or density of population, and scale or extent of economicactivity. Mobilising for Research and Assembling an LED StrategyA community begins A community begins the LED strategy planning process byidentifying the people, public institutions, businesses, community organizationsand other groups with interests in the local economy. This is often led by the localgovernment, usually the mayor or city manager. The skills and resources that eachof these stakeholders bring to the strategy process provide important foundationsfor success. It is important that the individuals and organizations have or are givensome basic knowledge of the workings of the city, town or rural economy. A resource review is a necessary input to the strategy, and should include theidentiﬁcation of ﬁnancial, human and other capital resources that can contributeto the LED strategy. Working groups and steering committees can be establishedto ensure that both formal and informal structures are in place to support strategydevelopment and implementation. Other issues that need to be tackled in the earlystages include establishing LED staff teams and suitable political processes. Local ownership involving all groups is essential for successful LED

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Page 12 Toolkit for Local Economic Development Each community has a unique set of local attributes that can advance or hinderlocal economic development. These include its economic structure, its humanresource capacity to carry out economic development, and how conducive the localgovernment investment climate is to economic and business activity. The aim of thelocal economy assessment is to identify the community’s strengths and weaknessesincluding its human resource capacity, local government’s ‘friendliness’ to all typesof business activities from corporate to informal, and the opportunities and threatsfacing the local economy. The goal of the assessment is to create an economic proﬁle of the communitythat highlights the basis of its comparative and competitive advantage in relationto neighbouring communities and other regional, national or internationalcompetitors. As part of the LED strategy, a shared economic vision for the community andLED goals, objectives, programs, projects and action plans will be developed. Thisprocess ensures that all major stakeholder groups are given the opportunity to deﬁnewhat is to be achieved, how it is to be achieved, who will be responsible and thetimeframes associated with the implementation of the LED strategy. ������������������ ��������� ������������������ ���������������� ���������� ���������������������������������������� �������������� ���������������������� ���������������������������������� �������������������������������������������������������� ������������������ ���������������������� ��������������������������������������������������� ���������� Most importantly, the LED strategy and action plans must be ﬁnely assessedagainst the staff resource capacity to carry them out, as well as the budgetaryconstraints. Ultimately, the strategy’s action plans should be incorporated into thework and budgetary program of the local authority, and appropriate elements takenon by other stakeholders (business associations, utilities, educational institutions,etc.). The aim is to leverage strengths, overcome weaknesses, exploit opportunitiesand deal with threats. Strategy implementation is driven by the LED action plans. Ongoing monitoring

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Toolkit for Local Economic Development Page 13is provided through the formal structures identiﬁed and created in step one, andevaluation of speciﬁc project outcomes ensures that the strategy continues to leadto the achievement of the LED vision, goals and objectives. In undertaking strategyimplementation, it is important to identify and establish the appropriate institutionsto carry out the plans. Good monitoring and evaluation techniques help to quantify outcomes, justifyexpenditures, determine enhancements and adjustments, and develop good practices.This information also feeds into the review of the complete LED strategy. The LED strategy should be reviewed at least annually to ensure that it remainsrelevant. It may be that conditions have changed or that the initial assessment wasincorrect to the local conditions. The LED strategy should evolve continuously torespond to the ever changing competitive environment Components And Variations Within An LED StrategyBy actively reviewing their economic base, communities gain an understanding ofthe opportunities for, and obstacles to, growth and investment. With this newfoundunderstanding, communities attempted to expand their economic and employmentbase by devising and undertaking strategic programs and projects to removeobstacles and facilitate investment. Today, local economies face an even greater setof challenges at the international, national, regional and local levels.

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Page 14 Toolbox for Local Economic DevelopmentInternationalGlobalization increases both opportunities and competition for local investment. Itoffers opportunities for local businesses to develop new markets but also presentschallenges from international competitors entering local markets. Multi-site, multi-national manufacturing, banking and service corporations compete globally to ﬁndcost efﬁcient sites in which to locate. Technologically advanced growth industries require highly specialized skills anda supporting technology infrastructure, but increasingly all industrial and servicesectors needs highly specialized and speciﬁc skills and business environments.Local conditions determine the relative advantage of an area and its ability to attractand retain investment. Even small towns and their surrounding rural regions candevelop local economic opportunities at a national or international level by buildingon their local economic strengths.NationalAt the national level, macro-economic, ﬁscal and monetary reforms directly impactthe economy at the local level. National regulatory and legal frameworks such astax reform, telecommunications deregulation and environmental standards directlyinﬂuence the local business climate, either enhancing or reducing the potential forlocal economic development. In many countries, national government functionscontinue to be decentralized thereby increasing the responsibility of municipalgovernments to retain and attract private industry.RegionalCommunities within and between regions often compete to attract external and localinvestment. Opportunities exist for communities across regions to collaborate witheach other to help their economies grow, for example, by supporting infrastructureor environmental improvements that demonstrate a broad regional impact. Anassociation of local municipalities or regional governments can serve to facilitatethese types of LED effort by acting as an intermediary between national andmunicipal governments. Metropolitan and Municipal Businesses, both large and small, often choose to locate in urban areas becauseof agglomeration economies (i.e., the beneﬁts derived from sharing markets,infrastructure, labour pools and information with other ﬁrms). The economicadvantage of urban areas depends signiﬁcantly on the quality of urban governanceand management, and on the policies affecting the availability, or lack, ofelectricity, transport, telecommunications, sanitation and developable urban land.Factors affecting labour productivity in the local economy include the availability

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Toolkit for Local Economic Development Page 15and quality of housing, health and education services, skills, security, trainingopportunities and public transport. LED infrastructure comprises two main components, ‘hard’ physical infrastructureincorporating roads, rail, water, sewerage and drainage systems, and energy andtelecommunications networks; and ‘soft’ infrastructure of social, cultural andcommunity facilities and capacity that enhance the quality of life and encourageindustry and business development. ‘Hard’ and ‘soft’ infrastructure factors are major determinants of a community’srelative advantage. The quality and provision of ‘hard’ and ‘soft’ infrastructureforms the cornerstone of a successful local economy. Metropolitan areas can offerincreasing opportunities through economies of scale and effort as a result of the sizeof the physical and human capital available, as well as the size of its services andinternal market. Uncoordinated and disparate institutional frameworks and planning bodiesin metropolitan areas can serve to undermine area-wide economic growth.Metropolitan-wide LED agencies, consortia and networks can be created to addressthese constraints. These innovative institutional frameworks, which represent theinterests of different municipalities and partner agencies in the same metropolitanarea, can bring beneﬁts to the key actors of each municipality (public departments,business and civil society organizations). These frameworks can serve to unitethe efforts of different localities and increase LED results, and can strengthenrepresentation in higher levels of decision-making. This type of cooperation hasworked well for cities that belong to common market agreements or that havecommon sector interests (i.e. Eurocities, Indonesian City Network, South AfricanCities Network). The most important and effective local economic development activity that amunicipality can undertake is to improve the regulatory processes and proceduresto which businesses are subjected by the municipality itself. A survey of mostmunicipalities would reveal a number of complex, poorly managed, expensive andunnecessary business registration systems. By reducing these, a municipality canquickly improve its local investment climate.

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Page 16 Toolkit for Local Economic Development Disadvantaged Populations and Informal EconomyIn many countries, economic growth is determined not only by the formal economy(the economic sectors that are legally registered and pay taxes) but also by theinformal economy (those activities that are not legally registered). In some casesthe size of the informal economy is greater than the formal economy, and it interactswith the formal economy by supplying certain goods and services. The linkagesbetween the formal and informal sectors of the economy need to be understood andconsidered in devising a local economic development strategy. Communities and businesses increasingly recognize that a successful localeconomy requires social, as well as economic, environmental and physical renewal.In many cities, large numbers of low-income families work within the informaleconomy. However, these informal activities are often low-growth activities as aresult of a lack of access to proper infrastructure and services (i.e., electricity, water,and roads), regular means of ﬁnancing, information and skills. The development of an LED strategy should recognize and accommodate theconstraints and opportunities of the informal economy so as to broaden the appeal ofa strategically planned LED strategy. It should also encourage wider social beneﬁtsfor all a community’s economic and social sectors, both formal and informal,disadvantaged and excluded.

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Toolkit for Local Economic Development Page 17 Do a drawing to show how you understand LED

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Page 18 Toolkit for Local Economic Development Do you agree with trade barriers being reduced? Write down points for and against free trade._____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ What challenges are there in LED for your local municipality?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Toolkit for Local Economic Development Page 19 CHAPTER 2 UNDERSTANDING THE POLICY CONTEXT FOR LED • Knowledge of the constitutional and statutory mandates for LED • Deﬁning responsibilities of councillors for Local Economic Development – distinguishing the roles of councillors and ofﬁcials in municipalities • Issues that district councillors need to be aware of in working to support LED • Understanding what district municipalities can do to stimulate the Local Economy by examining the extent and nature of what can be done to create jobs from the local level.

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Page 20 Toolkit for Local Economic DevelopmentThe role of local government in development comes from Section 152 of the SouthAfrican constitution.The Constitutional ProvisionsSection 152 (1) c states that one of the objects of local government is to promotesocial and economic development. Expanding on the developmental duties ofmunicipalities, Section 153 goes on to state:“A municipality musta. structure and manage its administration, budgeting and planning processes, to give priority to the basic needs of the community and to promote the social and economic development of the community; andb. participate in national and provincial development programmes.” (1)These objectives are further articulated in the Municipal Systems Act 32 of 2000.The stated priority function of this Act is “To provide for the core principles,mechanisms and processes that are necessary to move progressively towardsthe social and economic upliftment of local communities…” and more so “toprogressively build local government into an efﬁcient, frontline development agencycapable of integrating the activities of all spheres of government for the overallsocial and economic upliftment of communities”… The primary means to give effect to these developmental roles is by undertakingdevelopmentally-oriented municipal planning which should ensure progress towardsSection 152 and 153 of the constitution (Chapter 5, sub-section 23, MunicipalSystems Act). Thus the Integrated Development Plan (IDP) of each municipality isintended to reﬂect a “single inclusive and strategic plan for the development of themunicipality which links, integrates and co-ordinates plans and takes into accountproposals for the development of the municipality”. Components of an Integrated Development Plan (IDP)An IDP must contain• a vision for the municipality’s long term development emphasising most critical development and internal transformation needs• an assessment of existing levels of development including identiﬁcation of communities lacking basic municipal servicesSource:(1) Municipal Systems Act 32 of 2000

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Toolkit for Local Economic Development Page 21• the council’s development priorities and objectives including LED aims and internal transformation needs• the council’s development strategies, to be aligned with national or provincial sectoral plans and planning requirements (legislated and binding)• a spatial development framework providing for land use management• operational strategies• disaster management plans Status of an IDPAn IDP• is the principal strategic plan with respect to planning, management and development• binds the executive authority of the municipality• binds all other persons with respect to their duties in the IDP and the rights of persons passed as a by-law. Chapter 6 outlines the establishment of a performance management system.Though not stated as such the PMS in theory, should reﬂect achievements of thetargets of the IDP. As part of the process of planning an IDP, local governments are intended todevelop a culture of community participation (through the establishment of wardcommittees). According to Chapter 4 of the Municipal Systems Act, a municipalitymust encourage and create conditions for the local community to participate in thepreparation, implementation and review of its IDP, its PMS, the monitoring andreview of its performance, budget preparation and strategic decisions relating to theprovision of municipal services. In addition, municipalities should“contribute to building the capacity of• the local community to enable it to participate in the affairs of the municipality; and• councillors and staff to foster community participation; and• use its resources, and annually allocate funds in its budgets, as may be appropriate for the purpose of implementing (a) and (b) above.” (2) This toolkit can be treated as one component that would be ﬁtting in termsof the provisions of the Act as quoted above. The Act goes on to stipulate theSource:(2) Municipal Systems Act 32 of 2000

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Page 22 Toolkit for Local Economic Developmentobligations with respect to mechanisms, processes and procedures to includecommunity participation ensuring the inclusion of those who are illiterate,disabled or disadvantaged by gender or other causes. There are thus provisions forcommunication and notiﬁcations and admission to public meetings. Another relevant development reference in the Act relates to local governmentbuilding its capacity to perform its functions. This means that municipalities needto ensure that councillors and ofﬁcials understand the policies relating to LED. Therecently released, “Stimulating and Developing Local Economies” (dplg, 2006)presents the National Framework for LED in South Africa. The provisions of thisframework document will be expanded below. The reference to building its capacity also means that it is of prime importancethat municipalities and metros employ ofﬁcials that are trained in LED. They alsoneed to employ technical professionals who can undertake key responsibilities inurban and regional planning and studies in working out the competitive advantagesof local economies. In cases where such expertise does not exist, municipalities cancontract in researchers and planner with the appropriate skills. Sub-section 74 of the Municipal Systems Act states that “provision may bemade for the promotion of local economic development through special tariffs forcategories of commercial and industrial users.” It must be remembered of coursethat increasing tariffs increases the taxes and costs for businesses which in the longrun could impact on their competitiveness. This suggests that municipalities needto be creative about how to fund LED. (See Chapter 7 of this toolkit for details ofdifferent sources of funding for speciﬁc LED projects and programmes.) It would be useful to note at this stage, that the major function of local governmentin LED is to ensure that appropriate, user-friendly and fully functional infrastructureexists to promote business development in the local area. The maintenance andconstruction of infrastructure are funded mandates of local governments. Furthermore, the central role of local government is to facilitate LED, which meansthat it should hold consultative meetings and engage in planning and joint researchprocesses on how to promote the local economy. Holding meetings and supportingresearch processes are not major cost items relative to the budgets available to mostmunicipalities. The importance of community liaison is reiterated in the Municipal StructuresAct (117 of 1998). Sub-section 19 stipulates that a “council must strive within itscapacity to achieve the objectives set out in section 152 of the Constitution. In view of this councils have to annually review the needs priorities and participatory

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Toolkit for Local Economic Development Page 23mechanisms of the communities they serve while also reviewing their own deliverymechanisms and performance in meeting their constitutional objectives. The National Framework for LED in South AfricaThe most important source for dplg’s recommendations on LED are contained inthe National Framework for LED in South Africa. (3) Flowing from the evolving practice of LED described above and the South Africannational context described below, there are nine (9) principles identiﬁed that guidethis framework. These are:• Through a developmental approach, Government has a decisive role to play in shaping the economic destiny of our country.• Local Economic Development is an outcome of actions and interventions resulting from local good governance and the constant improvement and integration of national priorities and programs in local spaces.• Inward investment from the state or private sector will only be effective where the potential and competitive advantages of each area are known and exploited.• Promoting robust and inclusive local economies requires the concerted, coordinated action of all spheres and sectors of government centred on the application and localisation of the principles espoused in the National Spatial Development Perspective (NSDP).• Locally owned appropriate solutions and strategies must emerge to support national frameworks in both rural and urban local spaces and should promote sustainable development and sustainable human settlements.• South Africa competes in a global and increasingly integrated world economy whose threats must be minimised and whose opportunities must be exploited.• Private companies, including social enterprises and cooperatives, form the heart of the economy and have a crucial role to play as partnerships with public and community role players that will ultimately stimulate robust and inclusive local economies.• People are the single greatest resource and including all citizens in development and increasing their skills through greater role playing leads to increased opportunities for stimulating local economies.• Local initiative and responsibility, energy, creativity, assertive leadership andSource:(3) National Framework for LED in South Africa, plg, 2006, page 4

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Page 24 Toolkit for Local Economic Development skills will ultimately unlock the latent potential in local economies and will shape local spaces. The framework states (4) that the objectives and anticipated outcomes of LEDare:Objectives of the framework:• To shift towards a more strategic approach to the development of local economies and to overcoming challenges and failures in respect of instances where municipalities themselves try to manage a litany of non-viable projects or start-ups.• To support local economies in realising their optimal potentials and making local communities active participants in the economy of the country.• To elevate the importance and centrality of effectively functioning local economies in growing the national economy.• To wage the national ﬁght against poverty more effectively through local level debates, strategies and actions.• To improve community access to economic initiatives, support programmes and information.• To improve the coordination of economic development planning and implementation across government and between government and non- governmental actors.• To build greater awareness about the importance and role of localities and regions which globally are playing an increasingly signiﬁcant role as points of investment facilitated by supportive national policies.Outcomes of the framework over the ﬁve years:• Analysis of the 52 district and metro municipal economies undertaken and shared understanding across government of the challenges and potentials of these areas developed.• The competitive advantage of all District and Metro municipalities are identiﬁed, incorporated into its LED strategy and exploited.• All District and Metro municipalities have credible LED programs, which are being effectively implemented by a dedicated local economic development unit or similar entity.• All Local Municipalities have at least one staff member (at least qualiﬁed through the LGSETA LED Learnership) dedicated to coordinating inputs that strengthenSource:(4) National Framework for LED in South Africa, dplg, 2006, page 5

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Toolkit for Local Economic Development Page 25 the local economy.• The implementation of the IGRF Act and the effective utilisation of IGR structures occur to encourage and facilitate discussion and joint economic planning among municipalities and with Provincial and National Government.• All municipalities have innovative spatial development strategies, land-use polices, by-laws and implementation capacity to facilitate fast and effective business establishment and functioning, especially for informal/street traders, and SMEs.• All municipalities have at least one public-private partnership through which a major investment is being implemented.• A national excellence centre for monitoring, learning and research in local and regional economies is established. The role of national government in the framework is to set the scene for localeconomies to make decisions that will promote prosperity on the ground. Thus thefocus is on enabling local leaders, communities, businesses, NGOs, organised labourand other organised groups to realise their collective objectives. In this context, thestate sees its role as facilitator, networker, and monitor. There is recognition thata pure market solution is not likely to absorb labour or reduce poverty. Thus LEDefforts are expected to design solutions which national and provincial governmentwill work to support. Municipalities are to play a connector role in LED mobilising resources fromnational government departments. E.g. funds for skilling can be drawn from theSETAs and support can be obtained from SEDA to assist with the growth andretention of enterprises in their areas. There are also NGOS which can be tappedinto for resources. Municipalities are not intended to run programmes but to create platforms forbuilding partnerships and networking. LED is an important instrument for putting the “peoples’ contract” into action:• a territorial concept assuming synergy and partnership among local stakeholders• through LED people can work towards sustainable growth and development that improves the quality of life• LED can be the implementation component of a range of government policies e.g. the Microeconomic Reform Strategy, (MERS), the National Spatial Development Programme (NSDP) and the Expanded Public Works Programme (EPWP)

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Page 26 Toolkit for Local Economic Development The metros themselves must be capacitated fully to understand the opportunitiesarising from the policies and instruments provided by national and provincialgovernments. Visions of LEDThe deﬁnition of LED by the World Bank implies that it is primarily a processby which public, business and non-government sectors work together to create anenabling environment for economic growth and employment creation to improveeveryone’s quality of life. Practicing LED means:• Improving economic capacity to improve the future of the local economy; and• Increasing the productive capacity of local industries, mines, farms, ﬁrms, entrepreneurs and workers to improve and build competitive strength. A strong economy can be built by identifying local strengths and threats. Thestrengths of the local economy will form the basis for an LED strategy. Eachcommunity can then undertake a collaborative process to act on its strengths,weaknesses, opportunities and threats (SWOTs) and build the attractiveness of itsarea. Successful private enterprises (and productive public-private partnerships) createwealth and this depends on favourable local conditions. Local governments thushave an essential role in creating favourable environments for business successthrough its partnership among itself, business and community interests. While local government has a role in socio-economic development, it is notdirectly responsible for creating jobs. Rather, it should take active steps to create anenvironment in which sustainable jobs can be created. Every effort must be made at national level to ensure that there is access toﬁnance in the form of loans or loans mixed with grants, to enable small producersto establish and grow their businesses. Negotiations should be held with banks todeliver on the provisions of the Financial Sector Charter. At the same time the newlegislation to permit local co-operative and dedicated banks for savings and creditmust be accelerated. The National LED Forum should work towards co-ordination of funding andﬁnance for LED and creation of multi-sourced funding streams and also improvesustainable access to investment ﬁnance to build local competitive advantage.Source:(5) Primer on LED, World Bank, 2006

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Toolkit for Local Economic Development Page 27 Provinces, through their development agencies, must play a role in seeking tofacilitate ﬁnance for small producers, either directly or through agreements withﬁnance institutions. The metros themselves must be capacitated fully to understand the opportunitiesarising from the policies and instruments provided by national and provincialgovernments.Bibliography:Constitution of the Republic of South AfricaMunicipal Systems Act 32 of 2000www.worldbank.org: Primer on LED, 2006

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Page 28 Toolkit for Local Economic DevelopmentWhat are the implications of the above legislation and policies for you?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________What speciﬁc tasks and roles do you have to take on?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Toolkit for Local Economic Development Page 29 CHAPTER 3 THE BUILDING BLOCKS OF LED STRATEGIES • Understanding the local economy – its sectors and resources • Strategic choices which promote or hinder poverty and job creation • Identifying competitive advantage in the country, region, district and local municipality • Understanding concepts such as value addition, multipliers, leverage, backward and forward linkages, complementarities (of labour) and clustering. • Fleshing out opportunities for job creation and increased community involvement in infrastructure and private sector development e.g. subcontracting and tendering • Identifying the major blockages to investment and poverty reduction

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Page 30 Toolkit for Local Economic Development Understanding the local economy – its sectors and resourcesEconomics studies the uses of resources that are available, how we use them and theallocation of the gains from production and services across society. In any society,country and local economy, there are varying degrees of resources. Resourcesare scarce commodities that have to be managed and safeguarded if society is tocontinue gaining beneﬁts from their use, e.g. water, minerals, soil and oil.There are three basic resources: land, labour and capital. We use land to producefood and inputs into industrial production. Where land has minerals we mine it foruse in industry and for other uses. We apply labour to produce goods and servicesfor markets. We use capital, money and machinery to buy things that are needed forproduction and services and to pay labour. The method of production that we useis the technology.Technology: In early economic thinking, technology was considered as theinteraction between labour and capital. In the last forty years as computers andmachinery have become more sophisticated, technology has become a factor ofproduction. The increasing use of technology has led to a decline in the use oflabour around the world. This is one of the key reasons that unemployment hasincreased.Infrastructure: Another key resource in industrial and economic developmentis infrastructure. Industries, farms and mines cannot function without access toreliable “hard” infrastructure. This means that electricity, water and sanitationservices, refuse removal and transport infrastructure are an integral part of theability of the economy to function well and to grow. The recent power failures inthe Western Cape are an example of how breakdowns in infrastructure can causelosses in industrial production. Planners need to make sure that infrastructure workswell for current needs and also has excess capacity to cater for growth.Land: Closely aligned with infrastructural needs is the availability of sites andzoning for industries, processing, trade and service activities in the economy.As local government plays a key role in deciding on land use management andregulating land use, spatial planning is a critical input into LED. Technology Land Goods and services Labour produced by the Capital economy Infrastructure

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Toolkit for Local Economic Development Page 31Skills: The extent of skills available in an economy is often a key determinant ofemployment levels. Skills have risen in importance to the point where we nowspeak of a ‘knowledge economy.’ Theskills however have to be applicable to For example: Food, clothing andthe types of employment opportunities housing for the mineworkers, engineers and others, people to maintain andthat are available. E.g. where there repair machinery and equipment, etc.are minerals, the skills required arein mining engineering, geology andeconomics. In addition, mines will need construction skills to construct and propunderground tunnels, machinery and skills to transport minerals. Alongside thesekey skill areas, there will be a need for a range of support services. The same logic can be applied to the use of land for agriculture or of natural andcultural resources for tourism. In each sector, there are a host of goods and servicesthat are needed alongside the lead sector to provide for the needs of industry andhouseholds. It is also important to note that resources have to be renewed and have a lifespan,i.e. mines only have a limited amount of minerals to be extracted and land has to beregularly fertilised to continue being productive or there has to be rest periods in theuse of land or rotation of crops and grazing to keep the ground productive. The presence of natural, human and cultural resources, along with thecapital and technology to use for the beneﬁt of society, are the major factorsin working out the lead sectors in any economy. e.g. If an area has arable landit could be suitable for some types Think of a sector as a ﬁeld ofof agriculture. The use of the term, specialised activity in an economy.‘some’ suggests that certain types land Thus agriculture, mining, tourism,is suitable for speciﬁc types of crops construction, etc are all areas ofor animal rearing. The potential for specialisation.agriculture is dependent on water thatis available, the costs of piping water and the availability of farming knowledge,seeds and farming equipment. The presence and efﬁcient use of natural or other resources become the source ofcomparative advantage in an economy. This brings us to another essential link for successful producers; there have to bemarkets or effective demand to sell the goods. The more the demand the strongerare the opportunities for growth in any sector. Growth in one sector leads to growthacross other sectors. When we measure growth across an economy, we calculate thepercentage change in performance from one period to the next.

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Page 32 Toolkit for Local Economic Development Thus when we work on growing an economy, we think about ways in which wecan identify where and what types of demand or needs exist and how we can meetthose needs. Meeting needs and seeking more and different markets implies that we have to beable to produce better quality at lower prices in order to compete on local, nationalor international markets. Our choice of market decides the extent of demand thatwe can cater for. However, as we mentioned earlier, we live in a world wheretrade barriers have all but dissolved. Goods and services are reaching countriesacross great distances. E.g. Kenyans are growing vegetables which are being usedto make salads that are sold fresh in supermarkets in London the morning after thevegetables have been picked and the salads made. Small scale Kenyan farmers haveidentiﬁed that Indians like certain types of vegetables. As Indian technical peopleand business owners now reside in many different places in the world, they growthese vegetables and they are ﬂown to places where Indian markets exist. As land isscarce and labour is expensive in Europe, Kenyans are also growing ﬂowers whichare being exported to Europe. These examples illustrate that opportunities for niche markets exist in manyforms that may not be immediately visible to us. Niche markets may be large orsmall though their success depends on A niche market is one where specialthe buying power of the market that is tastes are catered for or specialisedtargeted or the size of industry to which services are required.the market is linked. It also shows usthat where resources and skills exist, it is possible to diversify into markets we maynot have imagined. Another example in this context is the increase in business process outsourcing.Outsourcing refers to handing over some parts of a production or service to anothercompany. Companies do this as means of building specialisation and efﬁciencywhich simpliﬁes management and thereby can also reduce costs. One growing example of outsourcing is the use of call centres to provide informationand perform IT and telecommunications services which customers require. Thusbanks, insurance companies, medical aids, revenue services and even municipalitiesare increasingly using call centres to cater for aspects of customer needs. Again aspeople are highly skilled which leads to high labour costs, companies in Europeand the United Kingdom are outsourcing their call centre functions to countrieswhere labour costs less. As result, some British banks have call centres in India. InSouth Africa, call centres have become a growing area which is creating signiﬁcantnumbers of new jobs. The need for call centres depends on the extent of scale. Scalerefers to the numbers of customers a business has.

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Toolkit for Local Economic Development Page 33 Thus far we have established that Comparative advantage refers to theidentifying the primary resources in combination of factors that people oran economy gives us information economies have that places them in aabout potential lead sectors. We have stronger position. Thus a local economyalso established that the linkages with more technically skilled people inand efﬁcient use of capital (money a local industry using local resources has a comparative advantage in thatand machines), natural resources, particular industry.labour (knowledge), technologyand infrastructure are key factors inbuilding up comparative advantage in an economy. In the illustration below, production factors are used by ﬁrms and households to Households Waste Factor markets Prices Goods markets Firmsproduce goods which are exchanged in markets. While comparative advantage is a useful starting point it is not necessarily aguarantee of success. As we live in a world with high levels of competition, we needto build competitive advantage, i.e. be more efﬁcient at producing the same goodsand services at better prices and quality than other economies. This will enable us tobuild competitive advantage. We will explore this further in a later section. When we think about developing local economies, it is useful to think about building livelihoods rather than just creating jobs. Employment gives people an income. We need more than just to be able to earn a living. A healthy society considers and creates the means for people to enjoy a healthy lifestyle and be able to grow themselves in a variety of ways. This would include facilities to learn, play, be entertained, socialise, pray, be healed and participate in creating a community in which we believe. The presence of these facilities creates jobs and more importantly, attracts people and investment.

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Page 34 Toolkit for Local Economic Development Strategic choices that will promote or hinder poverty and job creationAn economy is able to produce or render services with the resources it has available.Therefore a starting point for understanding the advantages we have is to assess theresources that we have available and who wants to buy them from us. Here ourperception of resources in the context of local economies starts to become broaderthan the basic resources we identiﬁed above. When thinking of resources in a local economy we should therefore considerthe social, human, natural, physical, and ﬁnancial resources that we have in aneconomy. These are explained in Table 1.Table 1Social Resources Social resources refer to schools, hospitals, policing, social services, organised community groups, churches (and other places to worship), social and entertainment facilitiesNatural Resources Natural resources are features which occur in nature: land for grazing and cultivation, minerals or natural features which will attract visitorsHuman Resources Human resources or human capital is measured by the extent of skills that are present in an economy and the skills to provide social servicesPhysical Resources Physical resources refer to the buildings, housing, social facilities and different types of infrastructureFinancial Resources Financial resources includes the range of ﬁnancial services that people living in an area require as well the instruments and ﬁnance required by businesses and government Thus if an assessment of resources available to a local economy is being conducted,the above resources should be included along with the sectors that dominate in theeconomy and the extent of economic activity in the area. While an area may have extensive natural resources which promote activity inmining, tourism or farming, the extent of skill in combination with other resources,in the area determines the extent of exploitation of those resources that is possible. The use of labour versus equipment in a sector or industry determines the extentof job creation that is possible. Thus we differentiate between more and less labourintensity in certain sectors. E.g. the use of earth moving equipment in constructionminimises the use of labour. It is technically possible to select techniques thatpromote or hinder the extent of labour intensity. This however should be balancedagainst efﬁciency, or time taken to accomplish some functions. It is not always prudent to substitute labour for machines as this could affect the

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Toolkit for Local Economic Development Page 35competitiveness of products or services. If a bank teller had to calculate manuallyevery time a transaction was conducted, the queues in banks would be much longer.It is also safer for customers that transactions are recorded electronically as theydone. In short we have to examine the choices carefully to suit the task, the natureof the product and the markets for which they are intended. In a number of cases, NGOs and private businesses are working with ruralcommunities to produce mementos for tourists. These tend to be labour intensiveand can earn regular income. But if we consider that the tourist market is a limitedone and we work out ways to improve the standards and methods of production,their goods could be used to seek international markets. There are cases wherethis is occurring in the country. If the same producers also diversify the productrange into more utility or domestic items, the markets can be extended even further.With a local cultural ﬂavour added to goods, they sell the South African brand andmake use of global or much broader markets. This is how we can capitalise onglobalisation. In cases where local producers are given the opportunity to acquire internationalproduction standards (through the SABS – South African Bureau of Standards), theystand stronger chances of integrating into broader local, regional and internationalmarkets. Another area where local governments can support job creation is to combineinfrastructure development with skills programmes. This has been the norm on largescale projects where local businesses are taught how to become building contractingcompanies who are able to tender for further work after the life of the initial project.A possible addition to this process is the training of artisans. As larger companiesmanage the construction of infrastructure, and these projects extend over a fewyears, artisans can be given the skills, experience and qualiﬁcations through the lifeof these projects. Engendering qualiﬁcations enables people to ﬁnd better payingjobs or to create their own employment with additional business management andmarketing skills. It is important to remember that skills are valuable in assessing competence in aneconomy but it must be noted that the more the skills are linked into the dominantsectors in the local economy, the stronger the chances of building that economy.It is also useful to not that for every skilled job other jobs are created, e.g. when aperson is trained as a bricklayer and is employed there are jobs for brick makers,concrete mixers, transporters and others. This is known as complementary jobs.

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Page 36 Toolkit for Local Economic DevelopmentIdentifying competitive advantage in the country, region, district and local municipalityThe concept of value addition is useful to consider at this stage. E.g. South Africamines a variety of precious metals and semi-precious stones. The extent of processingthese stones and metals varies across the value chain. Some semi-precious stones arecut and polished in different countries in Asia and exported to other countries in theworld. This is due to the Asian countries having a competitive advantage in cuttingand polishing skills and technology. If we could develop the skills and acquire thetechnology locally and sell at prices which could compete with Asian producers, wecould build competitive advantage in the semi-precious stone market. In order to identify the competitive advantage of each segment (country, region orlocal) the structure of the local economy must be understood. This is best done byconducting a comparative analysis of towns or cities in order to determine whetherthe town’s economy is relatively specialized, and changes in the local economy’sGross Geographic Product will indicate whether the town is growing or declining.On the other hand, changes in employment within each sector that contributes toeconomic output will highlight any imbalances between sectors. Other variables that can be considered include changes in the number ofestablishments per sector, the size and class of ﬁrms per sector and the number andcontribution of SMMEs to economic output by sector and size class. This will givean illustration of the economic prominence of each sector and class size. Local and regional-level analysis is an important ingredient for long-term strategybuilding and planning. Structured analysis with regard to trends, potentials, threatsetc. is speciﬁcally important when looking at the bigger region and should be morethan just a summary or aggregation of local-level analysis. In some places regional planning and management instruments are used by thepublic sector (e.g. the district IDPs in South Africa). The use and results of theseanalyses should be made an integral part of the preparation for and understandingof competitive advantage. Value chains, backward and forward linkages, complementarily and clusteringA value chain refers to activities undertaken to bring a product from its conceptionto its end use and beyond. This includes activities such as input provision, design,production, marketing, distribution and support to the ﬁnal consumer. In someinstances few ﬁrms in the link control certain links in the chain. In other cases many

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Toolkit for Local Economic Development Page 37ﬁrms provide different functions or links in the chain. Activities can be containedwithin a single geographical location or spread over wider areas or even continents.One link in the chain can represent thousands of ﬁrms or could refer to one ﬁrmonly. Value chain analysis, cluster analysis and sub-sector analysis look at the competitiveness of local ﬁrms in certain sectors and value chains. Value chain analysis, cluster analysis and sub-sector analysis are often used interchangeably, and they often use similar methods or instruments for analysis. Despite the similarities they are still recognized as distinct ﬁelds in development. This being said, ideas, concepts and instruments are constantly ﬂowing between these ﬁelds.A Simple Value Chain: Dairy Farming Milk Butter Cheese Exports to other regions and Cattle Feed Packaging Transport countries The illustration above shows us how diary farming can lead into value additionactivities in the production of milk, butter and different cheeses. There are alsocomplementary activities which are stimulated through packaging industries andspecialised transport services which are required. Value chains are an important means of linking rural or small ﬁrms with regionalor global markets. Small and rural ﬁrms are increasingly under competition fromglobal ﬁrms that are part of or supplied by highly organized value chains, as theyare often unable to organize themselves in an efﬁcient way to be able to respond toincreasing competition from better organized value chains. From a local and regional perspective, value chains deal with the way small ﬁrmsinteract and form part of the bigger economic systems. The terms value chains or sub-sectors are often used interchangeably. Sub-sectoranalysis is the methodology by which the structure and processes of a sub- sectorare understood. A key concept within sub-sector analysis is leverage; that smallfocused inputs can generate commensurately larger outputs. This recognizes thatdevelopment agencies cannot afford to work with small ﬁrms on an individual basisand that therefore they must seek to make interventions that can inﬂuence largenumbers of ﬁrms with a single stroke. Value chain analysis or VCA also has strong links to the approach of clusterdevelopment. The concept of clusters as a “sectoral and geographical concentrationof enterprises” is described by Michael Porter in his book, the Competitive

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Page 38 Toolkit for Local Economic DevelopmentAdvantage of Nations, as “geographically close groups of interconnected companiesand associated institutions in a particular ﬁeld, linked by common technologies andskills. They normally exist within a geographic area where ease of communication,logistics and personal interaction is possible. Clusters are normally concentratedin regions and sometimes in a single town”. From the deﬁnition above it becomesapparent that cluster and sub-sector analysis is closely related, and that a clusterscan also form part of a value chain. Understanding the concepts of value chains, sub-sectors and clusters will allowfor development of strategies that promote inter-ﬁrm cooperation to collectivelyimprove the efﬁciency of participating enterprises. Clustering and networking is particularly pursued in response to competitivenessconstraints arising from small ﬁrm size, resulting in:• Cost sharing and participating for more effective innovation and research and development or R&D• More effective advocacy (inﬂuencing policy making) and buyer/supplier negotiation• Improved access to inputs and services• More efﬁcient marketing and market access opening possibilities for increased specialisation Value chains and sub-sectors have potential to improve technology for somecomponents or the upgrading of certain parts of the system, resulting in increasedopportunities. This has further potential for unlocking opportunities in niche marketsor switching from one industry to another more proﬁtable one. Examples can be agroup of manufacturers that switches to the proﬁtable motor industry, or a group ofnurseries switch from traditional garden plants to medicinal plants.

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Toolkit for Local Economic Development Page 39Value chain integration (5) INTERVENTION AREA KEY STRATEGIES & PROCESSES OPTIONS / WAYS TO IMPLEMENT Clusters Improve the competitiveness and Conduct a cluster assessment that performance of a given cluster in an investigates the information ﬂows, area relationship, technology usage etc. Identify opportunities to upgrade or opportunities to share resources. Establish a network broker or joint resource centres Value chain Improve the performance of a group of Conduct a value chain assessment ﬁrms within a value chain through the that indicates product ﬂow, information improvement of the value chain and relationships and supporting actors Analyze for opportunities and obstacles that can be addressed Sub Sector Improve the performance of a sub-sector Conduct a sub sector analysis to with a speciﬁc emphasis on small ﬁrms identify constraints and obstacles in order to stimulate growth Identify business services used in the sub-sector that could improve the performance further (see Business service cornerstone) Improve public support Identify the resource and infrastructure Develop special hard and soft to speciﬁc sub-sectors needs of the target sectors and mobilize infrastructure or clusters (see also the public sector to support them Promote special interests to other next cornerstone on government actors (e.g. Universities) Investment promotion) Create incentives for investment Creating networks or Connect businesses in order to create Identify a host organization that sector facilitators or economies of scale, or to optimize can act as a relationship broker and marketing body resource usage facilitator between businesse Identify potential markets and promote Develop a marketing body that products to them while at the same time promotes and markets the products of communicating market opportunities the sub-sector, cluster or value chain back to the sector component Strengthen the support Align supporting institutions and Involve and focus supporting to a sector or cluster business services to support growth institutions on growth opportunities in order to improve the and competitiveness Mobilize business service sector institutional layer around new opportunities Improve the visibility and Raise awareness of the sector to See next cornerstone branding of the sectors potential investors and to end markets Attract more supporting businesses and institutions to localitySource(5) Local Economic Development Strategic Planning and Practice Casebook, Cities of Change -World Bank

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Page 40 Toolkit for Local Economic Development Porter’s Five Forces AnalysisAssessing the Balance of Power in a Business SituationThe Porter’s 5 Forces tool is a simple but powerful tool for understanding wherepower lies in a business situation. This is useful, because it helps us understand boththe strength of the current competitive position, and the strength of a position we’relooking to move into. With a clear understanding of where power lies, we can take fair advantage ofa situation of strength, improve a situation of weakness, and avoid taking wrongsteps. This makes it an important part of a planning toolkit. Conventionally, the tool is used to identify whether new products, services orbusinesses have the potential to be proﬁtable. However it can be very illuminatingwhen used to understand the balance of power in other situations.How to use the tool: Five Forces Analysis assumes that there are ﬁve important forces that determinecompetitive power in a situation. These are: 1 Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, Supplier their strength and control over you, the cost of switching from one to another, and Power: so on. The fewer the supplier choices you have, and the more you need suppliers’ help, the more powerful your suppliers are. 2 Here we ask how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to businesses, the Buyer cost to them of switching from your products and services to those of someone Power: else, and so on. If you deal with few, powerful buyers, they are often able to dictate terms to you. 3 What is important here is the number and capability of competitors – if there are many competitors, and they offer equally attractive products and services, then it is most likely that local business will have little power in the situation. If suppliers and buyers don’t get a good deal, they’ll go elsewhere. On the other hand, if no-one else can do what is done in your local economy, then there is tremendous strength. 4 This is affected by the ability of customers to ﬁnd a different way of doing what you do – for example, if you supply a unique software product that automates an Threat of important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. 5 Power is also affected by the ability of people to enter the market. If it costs little in time or money to enter the market and compete effectively, if there are few Threat of economies of scale in place, or if there is little protection for key technologies, then New Entry: new competitors can quickly enter the market and weaken position of the local industry. If there are strong and durable barriers to entry, then the local industry can preserve a favourable position and take fair advantage of it.

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Toolkit for Local Economic Development Page 41 These forces can be neatly brought together in a diagram like Porter’s FiveForces. (6) To use the tool to understand the local economic situation, look at each of theseforces one-by-one. Brainstorm the relevant factors for the local market or situation, and then checkagainst the factors listed for the force in the diagram above. Then look at the situation that is present using this analysis and think through howit affects your local economy. Bear in mind that few situations are perfect; howeveruse environmental scan as a framework for thinking through what can be donechange to increase power with respect to each force.Example:Dineo Mahlati is deciding whether to switch careers and become a farmer – she’salways loved the countryside, and wants to switch to a career where she’s her ownboss. She creates the following Five Forces Analysis as she thinks the situation(6) This tool was created by Harvard Business School professor, Michael Porter, to analyze the attractivenessand likely-proﬁtability of an industry. Since publication, it has become one of the most important businessstrategy tools. The classic article which introduces it is “How Competitive Forces Shape Strategy” in HarvardBusiness Review 57, March – April 1979, pages 86-93.

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Page 42 Toolkit for Local Economic Developmentthrough: This worries her:• The threat of new entry is quite high: if anyone looks as if they’re making a sustained proﬁt, new competitors can come into the industry easily, reducing proﬁts;• Competitive rivalry is extremely high: if someone raises prices, they’ll be quickly undercut. Intense competition puts strong downward pressure on prices;• Buyer Power is strong, again implying strong downward pressure on prices; and• There is some threat of substitution. Unless she is able to ﬁnd some way of changing this situation, this looks like avery tough industry to survive in. Maybe she’ll need to specialise in a sector of themarket that’s protected from some of these forces, or ﬁnd a related business that’sin a stronger position.Key points:Porter’s Five Forces Analysis is an important tool for assessing the potential for

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Toolkit for Local Economic Development Page 43proﬁtability in an industry. With a little adaptation, it is also useful as a way ofassessing the balance of power in more general situations. It works by looking at the strength of ﬁve important forces that affectcompetition:Supplier Power: The power of suppliers to drive up the prices of inputs;Buyer Power: The power of your customers to drive down prices;Competitive Rivalry: The strength of competition in the industry;The Threat of Substitution: The extent to which different products and servicescan be used in place of those in the local economy; andThe Threat of New Entry: The ease with which new competitors can enter themarket if they see that good proﬁts are being made (and then drive prices down). By thinking through how each force affects a local economy, and by identifyingthe strength and direction of each force, it is possible to quickly assess the strengthof the position and ability to make a sustained proﬁt in the industry. We can thenlook at how to affect each of the forces to move the balance of power more in favourof the local economy.Source:(7) www.mindtools.comFor more information on this tool, and on Michael Porter’s approaches to competitive analysis, read CompetitiveStrategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter.

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Page 44 Toolkit for Local Economic Development Fleshing Out Opportunities for Job CreationWhen a competitive analysis is done, it shows up areas where local businesses canexpand and create clusters or add value. Making sure that the appropriate servicesand business support infrastructure is integral to building competitive advantage.Through these processes, local industry is more likely to build success and therebyincrease employment. AS the concept of clustering involves proximity, it is alsonecessary to ensure that the skills required to build efﬁciency, productivity andcompetitiveness are available in the local economy. When planning for expansionof local industry, it vital to project and make provision for the skilled personnel thatwill be required. As there are Sector and Training Authorities (SETAs) in SouthAfrica, it would be useful to engage the relevant SETA to identify the training andstandards that will be required to support industrial and other development. While the prosperity of local industry is essential in strengthening the economy,we need to think more broadly about ways to create jobs. You may recall that inthe ﬁrst chapter we discussed how mechanisation has reduced the number of jobs inmany countries. Thus if we are to create jobs we need to look further. Other areas that have been mentioned and can be considered are:• Training local businesses to tender for government contracts• Involving local businesses in development of housing and infrastructure• Improving product quality among small scale producers• Accessing regional and international markets for local products• Involving training institutions in improving capacity of youth groups, crèche operators and other community structures• Working with casual labourers to identify private sector opportunities• Local government sub-contracting some services to small local businesses rather than external large businesses, e.g. renovations, cleaning, and maintenance If local procurement agencies brainstorm the various categories of goods andservices that are purchased, there could be numerous opportunities where localbusinesses could be employed. Rather than using inefﬁcient suppliers, local businesssupport could be engaged to build competitiveness among local businesses.

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Toolkit for Local Economic Development Page 45 Identifying the major blockages to investment and poverty eradicationInvestment is key to promoting growth and development in a local economy. Whena competitiveness analysis is conducted, opportunities for extending the value chainthrough new processing or other activities are likely to show up. In addition, spatialframeworks are likely to yield land that could be used for further development. In linking to areas of potential there are numerous LED strategies that municipalitiescan adopt that will result in the desired developmental outcomes of povertyeradication, job creation, the broadening or transforming of local economies, andthe redistribution of incomes. Some of the strategies which could be used are:• Linking proﬁtable growth to redistributive development/ﬁnancing.• Making explicit linkages between ‘living wages’, human capital development and productivity.• Development and maintenance of infrastructure and services.• Plugging the leaks in the local economy, and• Retention and expansion of existing businesses. The optimal LED strategy will vary depending on local circumstances and willin part reﬂect what has been inherited, for example apartheid era biases must beconsidered so as not to amplify the inherited patterns of the past. Considerationof constitutional mandates and political priorities must be taken into account.Municipalities should conduct sufﬁcient research and consult broadly, garnersupport, buy-in and ownership from all stakeholders to ensure these issues havebeen adequately considered. The kind of LED approach that is implemented in any area will depend on theconditions of that particular area as well as reﬂect what has been inherited. Thusunderstanding of the local economy will require researching the local context, localeconomy and employment structure, local population and labour market1. Local context –looking at geographical and physical features beneﬁcial or conducive to LED interventions and their signiﬁcance regionally, nationally and internationally.2. Local economy and employment structure – detailing the nature and character of the local economy including employment base, dominant economic sectors (agricultural, formal, industrialised etc); levels of ﬂexibility and diversiﬁcation, support mechanisms, entrepreneurial climate.3. Local population and labour market – pertaining to demographic trends, incomes, quality of life, cultural characteristics and the interrelatedness of the sectoral,

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Page 46 Toolkit for Local Economic Development labour market, social affairs and education policies. All municipalities developing LED interventions should engage in the identiﬁcationand audit of local resources. Such audit will reveal potential and guide existinginvestors in making informed investment decisions assisted by the full knowledgeof what is available – for example, what natural resources (i.e. water) kinds of ﬁrmslocated within the municipality, social services and other services are available. Selection of suitable sectors for involvement is one of the important factors thatdetermine whether the objectives of the LED strategy will be achieved. An LEDstrategy can be a choice between growth and employment and this has implicationsfor targeting one sector or another. Thus, initiatives to foster growth have to complywith the demand of being broad based, equitable and have to balance the interestsof present as well as future generations. The participatory methodology (8) offers the following services:• The mobilization of local LED stakeholders• The identiﬁcation of feasible LED-initiatives• The improvement of communication and interaction between local stakeholders• The transfer of knowledge on LED process management to the local level• The alignment of the perception and understanding of LED between different stakeholders These services enable local stakeholders to start organic LED processes,characterized by more professional process management, a clear and continuousinteraction between public sector, private sector and civil society as well as by aneffective institutionalization (use of services). Participatory methods combine a number of elements to create an innovativeapproach to launch and sustain LED initiatives:• the Systemic Competitiveness concept, in particular its emphasis on the role of actors and of appropriate governance structures,• a variety of elements from strategic management, like the 5 Forces Analysis, and from Michael Porter’s work on localised competitive advantage,• the discussion on market failure and market adjustment as a guiding principle for business promotion,• the Moderation Method, i.e. a communication tool where workshop participants write on cards instead of just talking,Source: Results and Lessons Learned from PACA in South Africa: A Summary of the PACA Learning Cases of Ilembe(8)District Municipality and Mbombela Local Municipality, A Ruecker & S Fiedeldei (December 2004)

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Toolkit for Local Economic Development Page 47• the principles of Participatory Learning & Action on how to conduct rapid yet highly structured research with “optimum ignorance and appropriate imprecision”. The use of this methodology would bring about an LED environment where localeconomic opportunities are continuously identiﬁed and utilized by the community(direct beneﬁt), which contributes to the local economy’s competitiveness andequitable growth (indirect beneﬁt). Case studies of Ilembe District Municipality(IDM), a coastal district municipality in KwaZulu Natal Province, South Africademonstrates how participatory methods can beneﬁt a municipality. IDM, although incorporating major tourism attractions along its coast, facesmany of the typical economic problems of South African district municipalities,speciﬁcally a declining agricultural and manufacturing sector, an ongoing segregationof black and white businesses and a complete disconnection between the boomingtourism sector along the coast and the agricultural hinterland. In order to tacklethese challenges at local level, two parallel participatory exercises in agricultureand tourism were implemented in IDM from 20 – 28 October 2003, followed by aparticipatory set of discussions in the manufacturing sector from 16 – 20 February2004. Mbombela District Municipality, the second learning case to be analysed here, issituated in the Lowveld in Mpumalanga and has a land surface of 3331 km². The areaincorporates a growing timber industry and Africa’s biggest pulp and paper mill,and is crossed by the Maputo Corridor, the major transport axis between GautengProvince and the harbour of Maputo. The north includes the town of Hazyview andis an important fruit growing area. Agricultural production in Mbombela includesvegetables, tobacco, nuts, sugarcane, oranges and other subtropical fruits. Numerousgame lodges, hotels, conference centres, guesthouses and game reserves cater forthe increasing tourist demand in the region. The participatory discussions that tookplace in Mbombela in spring 2003 focused speciﬁcally on the tourism industryaround Hazyview.

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Page 48 Toolkit for Local Economic DevelopmentWhich are the lead sectors in your local economy? _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________What economic activities could be added to promote value addition in your localeconomy? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________What opportunities can be leveraged to create jobs in your local economy? _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Toolkit for Local Economic Development Page 49 CHAPTER 4 PLANNING FOR LED • The components of LED strategies • Strategic planning sessions – critical outcomes and decisions • Mobilising for participation and partnerships • Assigning territorial and sectoral roles across partners in LED processes • Using LED plans to improving public conﬁdence in municipalities

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Page 50 Toolkit for Local Economic DevelopmentIn the previous chapter we established that there are two key information sets thatare needed to inform an LED strategy. These are:• Information about social, human, physical, natural and ﬁnancial capital that is available in the local economy, and• Information about the state of the local economy which would include the key sectors of activity, ﬁrms operating in the area and the ability of local ﬁrms to sustain themselves against the rising tide of international competition. We now turn our attention to the processes and groups that will be involved inplanning various parts of an LED strategy. According to the World Bank (LEDPrimer, 2006), the main purpose of engaging in planning for an LED strategy is toprovide the foundations for a working action plan that will:• Provide an updated economic and policy framework within which the actions can be implemented• Bring together partners from all sectors of the economy to deliver common agreed aims and objectives• Demonstrate how the Local Economic Strategy will be delivered and monitored• Act as a tool to attract and access additional sources of funding to ensure its overall effective operation In Chapter 1, we established that there are 5 stages to planning for the growth anddevelopment of the local economy: ���������������������������������������� ���������������������� ���������������������������������� �������������������������������������������������������� ��������������������������������������������������� The Processes and Components of LED strategiesThe ﬁve stages will be described to begin and then we will explore some critical

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Toolkit for Local Economic Development Page 51aspects in more depth. The description of the ﬁve stages is adapted from the WorldBank LED Primer, 2006:Organising for LEDA community begins the LED strategy Inclusivity is vital for successful LEDplanning process by ﬁrst identifying the processespeople, public institutions, businesses,community organisations and othergroups who represent and have an interest in the local economy. This is often led bythe local government, usually a senior leader such as the Mayor or City Manager.The skills and resources that each of these stakeholders bring to the strategy processprovide a critical foundation for success. In a developed society, the identiﬁcation of these individuals and organisationswould assume some basic knowledge of how the local economy works. Clearly, inSouth Africa, there are likely to be groups who have little knowledge of how theeconomy works. In such cases, they should be given some training through a localinstitution or seek support elsewhere. The Municipal Systems Act of 2000 makesit clear that capacity will be required and allows for municipalities to build suchcapacity. Ward committees exist to organise efforts and are one possible groupthrough which capacity building can be conducted. In Chapter 1, we discussed some of the realities of South African society and theeconomy. In planning for participation, it is important to recognise these realities,though it is equally important to remember that LED should involve all groupingsin society if it is deliver in an equitable manner. E.g. if there are separate groups ofwomen in business, all groups should be included, their offerings and needs shouldbe assessed and joint means of supporting all groups can be considered. A similarprinciple would apply to formal and informal business associations. It is useful in the organisation stage to Information about the local economy isestablish working groups and steering necessary for growth and developmentcommittees to ensure formal structures planningare in place to support strategydevelopment and implementation.Assessing the Local EconomyIn assessing a local economy there are likely to be many variations. We mentionedearlier that in South Africa, there are sophisticated city economies, town economiesand rural economies. Each of these types will have different lead sectors andindustries and businesses with different abilities to withstand competition and togrow. To assess an economy, it would be necessary to understand the structure of

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Page 52 Toolkit for Local Economic Developmentthat economy, its human resource capacity to carry out economic development, aswell as how easy or difﬁcult it is do business in that economy. This stage shouldinclude all types of business from major corporations to informal traders and homebased businesses. Through such an assessment it will be possible to identify theopportunities and threats to the local economy. The aim of the assessment is to create an economic proﬁle of the area that highlightsits economic development capacity. Also important in the assessment processis the development of comparative information on the position of neighbouringcommunities and other regional, national or international competitors.Developing the LED strategy A shared vision builds ownershipThe process of developing the LED across all groupsstrategy integrates the stakeholder groupsformed and the assessment of the state of the economy. At this stage the groupswork from an informed perspective of the challenges, towards constructing ashared economic vision for the area and deciding on goals, objectives, programmes,projects and action plans. This process ensures that all stakeholders are aware ofwhat is to be achieved, how it is to be achieved, who will be responsible and the timeframes associated with the implementation of the strategy. Most importantly, theLED strategy and action plans must be ﬁnely assessed against the human resourcecapacity to carry them out, as well as the budgetary constraints. Ultimately thestrategy’s action plans should be linked to and where appropriate, be incorporatedinto the work and budgetary program of the local authority. The aim is to leveragestrengths, overcome weaknesses, exploit opportunities and deal with threats. As we discussed earlier, there are many different and sometimes competinginterests in South Africa. As a way of managing this, groups could be dividedaccording to the sector in which they have an interest. Thus there could be structuresfor formal and informal business or there could structures that deal with town orrural economic issues. It would also be useful to have a skills group which gathersinformation from the different sector groupings and collates the various skill needsacross the economy. LED plans are likely to reﬂect needs, commitments and programmes thatincorporate spatial plans, infrastructure programmes and business or agriculturaldevelopment and skills programmes that will support economic development. Ineffect, LED strategy integrates IDPs and business development in the area. Basedon this, the LED strategy should then assign responsibility across the differentstakeholder groups involved in devising the vision, goals and programmes andprojects.

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Toolkit for Local Economic Development Page 53Implementing the LED strategy Thorough implementation requiresStrategy implementation is driven by clear plans with deﬁned criteria tothe action plans. Ongoing monitoring is indicate progressprovided through the formal structures andevaluation of speciﬁc project outcomes ensures that the strategy continues to leadto the achievement of the LED vision, goals and objectives.Reviewing the LED strategy Even the best plans may need to beGood monitoring and evaluation adjusted to ensure ongoing progresstechniques help to quantify outcomes,justify expenditures, determine improvements and adjustments and develop goodpractices. This information also feeds into the review of the total strategy. The LEDstrategy should be reviewed at least annually to ensure that the overall strategy itselfis still relevant. It may be that conditions have changed or that the initial assessmentwas incorrect to the local conditions. The LED strategy should evolve continuouslyto respond to the ever changing competitive environment. Components of LED StrategiesGiven the diversity of economic challenges and the range of possible programmes,LED strategies are likely to entail considerable variation. A guiding principle shouldbe that local economies should prioritise programmes that will create the mostimpact in view of their goals. Some key components that should be incorporated:• A balanced set of hard and soft infrastructure programs, i.e. meeting needs for transport, energy, water, waste management and telecommunications networks (hard) as well as social needs for educations, training, business support and healthy lifestyles (soft);• A summary table highlighting priority initiatives and sectors earmarked for investment with budgets and plans to attract investors;• A schedule of LED projects consisting of a breakdown of costs and budgetary expenditures, together with projected and speciﬁc program targets, which include land area, jobs created and/or safeguarded, new small and medium sized enterprises, learning opportunities and businesses assisted;• An outline of processes for monitoring, review and evaluation.• A project implementation table that clearly identiﬁes individual projects with appropriate goals, sources of funding, implementing agency, start date and project duration;• Clear statements of the nature and requirements of each project, along with

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Page 54 Toolkit for Local Economic Development expected outputs and outcomes. These can be used as a benchmarking mechanism for monitoring the progress and output of project as it is implemented;• A table that clearly identiﬁes LED project partners, funding sources, project duration, target groups and commencement and expected completion dates.• The plans should document the conceptual links from vision to projects. This will keep the logic consistent and will help in reviewing progress in realising the vision;• Plans should reﬂect the resources that partners bring to LED projects and further resources required to achieve goals; and• Projects should identify the risks that could hinder progress and consider methods to contain or manage these. (9) Strategic planning sessions: Critical outcomes and decisionsWhen a municipality starts on the process of planning for LED, it needs to haveclear focus on bringing together the range of stakeholders and at the same timeensuring a strategic focus on achieving balanced development and growth acrossthe local economy. This can be quite complex in practice and it is worthwhile toconsider some different tools and approaches which can be used. Remember that the following approaches can be interlinked and combinedwith each other: fostering strategic dialogue, scenario-building, and the formaldevelopment of an LED strategy. While all three approaches are based on the samethe principles of participation, process orientation, incrementalism and the focus onlocally available resources and (realistic) local solutions, they can be differentiatedvia their increasing degree of intensity and institutionalisation:• Foster continuous strategic dialogue in the area: ongoing reﬂection on territorial development, constant adjustment and reﬁnement of vision and strategy, based on an ongoing process of strategic conversation.• Scenario-building: Scenario building is a popular approach used both in intra- and inter-institutional contexts for developing future strategies that are goal-oriented and robust against core uncertainties. Scenario building stimulates stakeholders to think “out of the box” and to develop creative, ﬂexible and focussed guidelines and ideas for future action. Core factors that may shape the future are deﬁned and classiﬁed according to their likeliness and the possibilities to inﬂuence them,Source: Adapted from Local Economic Development Strategic Planning and Practice Casebook, Cities of Change(9)-World Bank)

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Toolkit for Local Economic Development Page 55 and possible scenarios are written against the background of these uncertainties. An analysis of strengths, weaknesses, opportunities and threats (SWOT) of the territory and its organisations helps deﬁning and prioritising possible catalytic activities, as the scenarios and the result of the SWOT analysis are cross- connected. Eventually, the ultimate goal of the territorial development initiative or its organisations is deﬁned on the basis of the scenarios.• Supporting local government in developing such a strategy can add value to the process (in terms of the beneﬁts of strategy development as described above), if managed and steered correctly. Local government’s capacity for strategic planning and resource allocation and the transparency of decisions can be signiﬁcantly enhanced by a high quality LED strategy. Emphasizing the necessity of ﬂexibility and action orientation of the strategy, introducing multiple perspectives to the LED process and its goals and guaranteeing the participation and buy-in of all stakeholder groups in the strategy are the core elements to be considered when supporting local government in the development of an LED strategy. There are numerous analytical and moderation tools which can support these efforts. (10) In addition to the ‘how’ of planning, there has to be a focus on the types of projectsthat will meet goals of LED. The examples on the following pages illustrate a rangeof potential projects/interventions to meet goals.Source: Towards A common framework for GTZ’s LRED interventions in South Africa, Anja Rücker, Gabriele Trah(10)(unpublished)

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Page 56 Toolkit for Local Economic Development Strategy Aim InterventionsDevelopment and Create an enabling The provision of:maintenance of environment Reliable, cost effective municipal serviceinfrastructure and Save time, cost and delivery – choose a service deliveryservices technology mechanism that targets the under-serviced Efﬁcient infrastructure maintenance Municipal provision of social amenities and facilities (health, recreation and pre-school) Effective housing and settlements policy Appropriate zoningRetention and Assist local Development of local business skillsexpansion of businesses to (training)existing services improve their Providing advice, capital and technological productivity and support ncrease market Developing under-exploited sectors that share have comparative advantages Graduate to higher Outreach programmes (identifying speciﬁc value added levels of problems in local economy) the production chain Site identiﬁcation and assistance in locating elsewhere Changes in zoning and fast-tracking development applications Identiﬁcation and adoption of new technologies (hard/soft) Financial schemes and assistance packages (approach banks) Bulk buying Place and product purchasing Networking

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Toolkit for Local Economic Development Page 57 Strategy Aim Interventions Increase spending To stem the outﬂow Encourage communities to buy local on products of the of money from poor (understand the reasons for external local economy areas purchasing) Funding special events and festivals Providing infrastructure using local labour and locally manufactured materials Promoting employee training within local businesses and communities Networking enterprises of all sizes in the local area Human capital Ensuring that General and customised training within lead development and economic sectors productivity development brings Basic and advanced skills development social beneﬁts often Targeted procurement policies requires explicit linkages between ‘living wages’, human capital development and productivity Community Support poverty Promote safe savings collectives and economic reduction in low- ﬁnancial services, community based development income communities environmental management and and organisations maintenance schemes, urban farming projects. Support SMME development by providing business infrastructure, service subsidies, technical support through business advice centres, opportunities for involvement of SMMEs in government procurement, network key sectors in which SMMEs dominate Linkage of To ensure that Example: Construction linkage whereby proﬁtable growth businesses planning or zoning permission in a proﬁtable to redistributive investment beneﬁts geographical area is linked to commitment development/ disadvantaged to invest in impoverished areas. ﬁnancing communities and Example: Banks or other ﬁnancial areas institutions opening a branch in a wealthier area should do so in a low-income neighbourhood or to invest some of their turnover in local small businesses (Corporate Social Responsibility of private companies, e.g. BMW, ABSA).

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Page 58 Toolkit for Local Economic Development Some examples of LED strategies, instruments and targetsThe following examples provide an overview of particular interventions that havebeen employed to address numerous social and economic ills in various locales. Asis evident, various strategies and instruments have been utilised in conjunction witheach other to attain particular social and economic objectives. Three examples of where LED interventions have been employed in areasexperiencing economic decline are Stillbaai in Western Cape, Welkom in FreeState and Stutterheim in Eastern Cape. What is clear from these examples is that LED interventions rarely rely on oneparticular strategy, working in isolation. Instead, it is a combination of techniquesand instruments that are generally employed to tackle a range of problems that areusually most effective in achieving economic growth, job creation and the generalupliftment of social and economic conditions. All these examples relied heavily onpartnerships and local ideas to combat problems in their communities.Example 1: Stilbaai and Melkhoutfontein, Western CapeProblem Poor infrastructure, high unemployment, decline in economic activityTarget group Aged, unemployedInterventions Provision of health care facilities, release of land, promotion of tourism through construction of craft centre and promotion of products, securing of private sector and government funds, establishment of botanical garden, training.Outcome Expansion of business, job creation, decline in unemployment, increase in tourismStrategies and Instruments Development of infrastructure, Development of human capital, Investment attraction and place marketing, expansion of local business, Community Economic development

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Toolkit for Local Economic Development Page 59Example 2: Welkom, Free State Problem Economic decline, rising unemployment and job losses as consequences of falling gold prices and depletion of gold reserves Target group Unemployed, Small and large business Interventions Formation of partnerships between key LED stakeholders, including council, business and academic institutions. Interventions include small business development, skills training, access of land for alternative income generating schemes, marketing of the area, support for SMMEs through free industrial sites, loan subsidies, discounts on services, rental subsidies etc. Large business support such as Agriculture beneﬁciation, jewellery clusters, Eco-tourism. Development and promotion of sporting facilities Outcome Expansion of business, job creation, decline in unemployment. Strategies and Instruments Expansion of local business, Community Economic development. Retention and Expansion of existing businesses, SMME developmentExample 3: Stutterheim, Eastern Cape Problem Economy weakened by political strife, racial violence and regional economic collapse Target group Unemployed, informal settlers, small businesses Interventions Establishment of Stutterheim Forum and Stutterheim Development Foundation to oversee development process. Consolidation of strong non-racial civic organisation. Appointment of DBSA consultants. Established information centre to assist local business, urban development plan, local labour using labour-intensive practises awarded building and service contracts, IDT funding secured the provision of 900 Site-and-Service schemes and a school was built, using local labour and resources. Outcome Rapid economic growth, political stability, increased literacy and education standards, diversiﬁcation of skills. Strategies and Instruments Community Economic development. Retention and Expansion of existing businesses, SMME development, Development of human capital

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Page 60 Toolkit for Local Economic Development Mobilising for participation and partnershipsThe need for inclusivity in LED processes has been highlighted thus far. We havealso noted some of the complexities of involving the diverse groupings in SouthAfrican society. The key question is how to integrate across society, the economyand the government. To answer this question, it is important to ﬁrst look at where the formal mandatefor LED processes is usually allocated. National government has mandated localgovernment to be responsible for LED. Since there is no clear distinction betweenstrategic and implementing roles, this is often interpreted in such a way as to placethe sole responsibility on local government, which could risk exclusion of somerole-players, i.e. business and civil society organisations. While government is without doubt a key actor in LED, LED efforts can beconstrained by such exclusions. Sustainable LED requires clear economic thinkingand performance, it is based on economic dynamics and business principles, andlocal government is not well-equipped nor does it have the necessary capacity tosolely drive it. Vice versa, local businesses, while representing the “economic brain”of the area, would be overstrained with the mandate of sufﬁciently balancing andtaking into account of the balance of ecological, economic and social goals. Lastbut not least, both government and business have to be informed and managed bycivil society to ensure the broader acceptance and support of the process. Consequently, the idea of multi-stakeholder participation in LED has to face twochallenges: First, the necessary space must be created for all stakeholder groupsto be able to actively participate. A dominance of any one group would inhibit asuccessful process. Second, each actor must have the necessary space, acceptanceand understanding to fulﬁl the speciﬁc role it is best suited for. Can these roles be strictly deﬁned? While the speciﬁc roles may vary in differentcircumstances, there are some clear general guidelines for orientation: First, thelocal and/or regional administrative departments should focus on the creation offavourable enabling conditions for the thriving of the private sector. Furthermore,government has to play an important role in addressing market failures such asbarriers to entry for new businesses and introducing a longer-term strategic anddevelopmental perspective that goes beyond the planning horizon and capacity ofmost individual businesses. Second, the private sector and civil society (businesses,chambers and trade/professional organisations, as well as other stakeholders suchas NGOs and community organisations) should articulate their interest and committo the creation of income and employment. Third, the exploitation of businessopportunities lies best in the hands of the private sector. Cooperation is reached by

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Toolkit for Local Economic Development Page 61enabling markets mechanisms and LED initiatives to complement each other, henceallowing processes of an active economic development and locational strategies toevolve. The management and moderation of such processes plays an important roleand can be the responsibility of any role-player (public administration, organisedbusiness or civil society organisations) as long as all sides agree. In South Africa, the role of public sector in LED is spelled out in clear policyguidelines. The South African White Paper on Local Government (1998) introducesthe concept of “developmental local government” which is deﬁned as: “Localgovernment committed to working with citizens and groups within the communityto ﬁnd sustainable ways to meet their social, economic and material needs, andimprove the quality of their lives.” The same document speciﬁes this role furtherwith regard to local economic development objectives. It states that “Local Government is not directly responsible for creating jobs. Rather, itis responsible for taking active steps to ensure that the overall economic andsocial conditions of the locality are conducive to the creation of employmentopportunities” (11) The function of local government in LED is to allocate resources to the creationof an enabling environment (i.e. through the provision of infrastructure and basicservices, the management of spatial policies or the design of a business-friendly andefﬁcient administration) or the moderation and coordination of the broader LEDprocess. In localities with a relative high capacity and competence of public administration,another role for the public sector gains importance: that of an active marketdevelopment facilitator, i.e. through the use of public funds for temporaryinterventions to address a speciﬁc market failure. Market failures are an importantand wide-spread barrier to LED, and government can play a crucial role in bothpreventing and removing them. To quote John McMillan (12): “Markets are subtleorganisations. The mechanisms that underpin transacting are intricate…. Marketsdo what they are supposed to do, however, only if they are well structured… Themechanisms for transacting develop from the bottom up, via innovations made bythe participants. Spontaneous evolution is the main driver of markets. To reach theirfull potential, however, markets need help from the government.” In other words, the role of government in relation to the private sector is to“develop the frameworks and ‘rules of the game’ that permit space and opportunitySource:(11) Municipal Systems Act, 2000(12) Mcmillan, John: Reinventing the Bazaar; A Natural History of Markets, New York, 2002, page IX

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Page 62 Toolkit for Local Economic Developmentfor the private sector to operate: building essential capacity, delivering key publicservices and promoting competition.” (13) The key role of local government is then to facilitate or integrate participationacross civil society and business. Local government is both role-player andintegrating force in LED. Its role is to manage the creation of a favorable businessclimate on the one hand and on the other to construct and maintain infrastructuretowards business growth and healthy lifestyles for the communities in its area. Afurther role as leader in LED processes is to form partnerships with business andcivil society and to mobilise support and participation. Assigning Roles across Partners in LED processesThe importance of participation and partnerships has been emphasized above. Forpartnerships to work well, it is essential that roles are clearly deﬁned. The roledeﬁnitions below can be adapted to suit the circumstances in different situations.Roles and responsibilities of government in LEDTo ensure the success of LED, national government should:• Co-ordinate and align support to municipalities for LED through the IDP process;• Provide additional support to municipalities implementing their developmental mandate;• Provide the overall legislative and regulatory framework for LED through the National Framework for LED;• Maintain strong inter-governmental relationships using and strengthening existing institutions;• Provide the technical and knowledge resources for municipalities for the implementation of LED;• Disburse information to provincial and local government about LED and LED support;• Support and provide guidelines to monitor the outcomes and impact of municipal l LED activities. Provincial government has Constitutional duties with regard to local government,Source: Modiﬁed from, Towards A common framework for GTZ’s LRED interventions in South Africa, Anja Rücker,(13)Gabriele Trah

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Toolkit for Local Economic Development Page 63and these correspond to the responsibilities of the provinces in relation to LED:• Align and co-ordinate LED initiatives with national and local priorities,• Make available ﬁnancial and technical resources to implement and sustain LED;• Share information regularly (e.g. provincial economic trends, land use, investment, new developments) with municipalities; and• Monitor and evaluate the impact of LED initiatives provincially. Local municipalities have the following responsibilities as the key implementationagent of government within LED. Together with the community, local business andgovernment structures at all levels, local ofﬁcials will need to take responsibility forthe development of their local economies. Their responsibilities will be to:• Ensure that social and economic development are prioritised within the municipal Integrated Development Plans (IDPs);• Conduct local economic regeneration studies that form a core component of the IDPs;• Establish LED capacity within the municipality that actively promotes interdepartmental collaboration;• Establish LED groups within the community to mobilise the efforts and resources of local stakeholders around a common vision;• Build and maintain an economic data base to inform local decisions and act as an ‘early warning system’ within the municipality;• Identify and market new economic opportunities;• Create an ‘enabling environment’ for local businesses through efﬁcient and effective service and infrastructure delivery;• Improve the quality of life, and facilitate economic opportunities, of people living within the municipality by addressing infrastructure and service delivery backlogs;• Understand and communicate the complex local economic relations, limitations and advantages to key role players;• Network with key sectors and role players to create partnerships and projects;• Motivate and support individuals, community groups and local authorities to initiate and sustain economic initiatives;• Mobilise civil society to participate in LED and encourage public participation;• Promote inter-departmental collaboration across line departments; and• Establish sector linkages and clustering of economic activity.

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Page 64 Toolkit for Local Economic Development Keep in mind that municipalities can be co-ordinator, facilitator, stimulator,entrepreneur or developer. The above list is not comprehensive. Constitutionallymunicipalities need to use their powers to promote social and economic development– indeed, there are many possibilities to be explored. The role of civil society in LEDLocal residents must be fully involved in the local development process. Forsuccessful LED processes to be community driven:• A community must have a core of local, capable and respected leaders who are prepared to commit time, priority and belief to LED,• A community needs to identify and foster such leadership. The active engagement of women and young people in the leadership group is essential,• Community leaders need to have or acquire the necessary skills, knowledge and attitudes necessary to manage economic change,• Leaders must operate in a transparent manner and be democratically accountable,• Leaders must be willing to report, listen and ensure the support of the community,• Leaders should provide inspiration and participate in developing new layers of leadership,• The community must adopt a practical development agenda which focuses on realistic and sustainable goals, long term plans and achieving some small visible achievements by getting people involved, a key to empowerment, and• The goals must be realistic and address the community’s needs. To achieve this, there needs to be constant evaluation and adjustment of the action plan. There is the need for a joint vision of what key community stakeholders wantfor the collective future of the community, and a commitment to the concepts ofpartnership and co-operation. For success, they need to organise themselves in aprofessional manner to make things happen. This requires organisation, structure,processes and a locally based organisation to facilitate and manage developmentalefforts. It must gain the communities’ conﬁdence and have the support of all role-players.

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Toolkit for Local Economic Development Page 65 The Role of Business in LED• Business needs to recognise the importance of co-operating with government and civil society in LED• It should organise itself to participate appropriately in building the economy of the area• While being mindful of environmental management, business needs to work on feasible expansion strategies• Business should co-operate with government on creating a favourable climate for investment• Opportunities for clustering should be promoted across business to enhance competitiveness of local industries• Large businesses could support small business development through advisory and linkage mechanisms• Larger businesses could help to grow the economy by sub-contracting to and tendering from local small businesses• Developers of trading areas should ensure that microenterprises are incorporated into their spatial planning frameworks. There are a useful set of structures that could be used, “In many developed (14)countries, successful local or regional development is based on policy networks thatconsist of various government agencies, the private sector, trade unions, NGOs,and other players. Functioning networks in general have been seen as a successfactor of development in general, since they seem to be the best organisational formto unleash creativity, innovation and the social coherence necessary for territorialdevelopment. But network patterns require a certain amount of social trust that inmany developing areas has been destroyed due to ethnic or racial tensions, distrustbetween the public and the private sector or governance issues such as corruptionor the absence of the rule of law. Networks are also the best organisational form for collaboration and problemsolving in cases where government cannot enforce compliance, as is the case ofLRED, which has to rely heavily on the voluntary initiative of the private sector.But the functioning of network patterns is highly dependent on good governance.” The case study below illustrates a successful participatory process followed inPrince Albert to engage in LED planning.Source:(14) Towards a common framework for GTZ’s LRED interventions in South Africa, Anja Rücker, Gabriele Trah

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Page 66 Toolkit for Local Economic DevelopmentCase Study (15)In Prince Albert, a small town in the Karoo, the municipality set aside a week forplanning and consultation. The purpose was to gain a wide variety of opinions onthe needs, opportunities and constraints for development in the town. The desiredoutcome was to come up with an agreed set of development priorities by the endof the week, which would inform the LED strategy to be followed. In order to ensure broad participation, a wide variety of stakeholders wererepresented. These included: hospitals, clinics, doctors, youth, schools, churches,crèches, government departments, women’s organisations, political organisations,farm workers’ association, local businesses, welfare groups, sport and recreationgroups, municipality, civics, tourism committee, farmers’ association, rate payersassociation, ABET groups, and the local elderly centre. The stakeholders participated in a series of workshops on the following topics:• Developments in community-based welfare services• Priorities for social and community development• Putting Prince Albert on the Tourism Map• Expanding economic and employment opportunities in business• Promoting innovations in agriculture• Youth development – needs and opportunities• Organisation structures for effective development• Planning the way ahead Local Economic Development Training Manual: A Resource Book For Municipal Councillors And Ofﬁcials,(15)Department Of Provincial And Local Government , October 2001

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Toolkit for Local Economic Development Page 67Using LED plans to improving public conﬁdence in municipalitiesThe National Framework tells us:Improving conﬁdence in municipalities is a critical ﬁrst step in attractinginvestment and building loyalty to local areas. The way local areas are governedby municipalities is a key determinant of local economic development. Allied tothis is the marketing of localities. This must be in co-ordination with national andprovincial programmes. Municipalities will have to focus on providing good local governance, reliable andeffective services and sound administration. The requirements for this are clearlyspelt out in policy and legislation and the local government system is evolvingin practice. Recognising that everything a municipality does impacts on the localeconomy it will be necessary to pay particular attention to the following:• Basic ﬁnancial management, project management linked to the provision of infrastructure and services in a ﬁnancially sustainable manner.• Provision and maintenance of quality and reliable infrastructure and services• Establishment of clear and well supported spatial policies and land-use management systems with particular emphasis on integrating small and informal traders in business zones.• Clear and unambiguous policies for economic development at the local level based on market realities• Speedy and effective handling of development applications for business establishment, property development, and township establishment.• Sound and strategic property rates and service tariff policies.• Proper community care/interface, billing and revenue collection systems.• Communication and marketing of the services and regulations in an inclusive manner Especially in the metropolitan municipalities and secondary cities, greaterattention should be paid to creating more efﬁcient spaces that integrate land andhousing (especially social and rental accommodation), trade and public transportsystems.

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Page 68 Toolkit for Local Economic DevelopmentAre your planning committees sufﬁciently representative? Which other groupsshould be included? _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________What major issues should be covered in your economic assessment?__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________What other issues should be considered in LED in plans in addition to the areascovered in this chapter ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Page 70 Toolkit for Local Economic Development As communities, business and local government plan for LED, needs andpriorities are likely to arise in various areas and joint decisions will need to be madearound short term priorities and areas can be deferred to other planning periods.Programmes will probably include:• Infrastructure development to increase access for businesses and households;• Business support programmes to retain existing businesses and encourage start- up or relocating businesses to enter the area;• Spatial planning to promote land acquisition and property development for businesses and households;• Skills programmes to respond to business and government for greater productivity and efﬁciency; and• Social development programmes to increase participation in the local economy and build better lifestyles for the community. In each area of possible programme activity, there are a range of projects whichcould arise. How LED facilitation is managed to prioritise the order of projectsselected can easily become a dilemma for LED managers as well as local governmentand community leaders. There are ﬁve key principles to support the dilemma of making choices: (1)• Pursue a process orientation and incremental approach• Promote stakeholder participation and networking• Pursue a market driven approach• Focus on opportunities• Apply systemic thinking/systemic competitiveness The ﬁrst principle of a process orientation and incremental approach suggests thatas processes unfold, communities and businesses will realise the complexities ofchange in LED. Thus if facilitators build on the principle of an incremental approach,local role-players will work on the basis of the parts adding up to whole. This wayplanning will assume understanding of establishing well-functioning aspects of thelocal economy in stages and add to this in a progressive and manageable manner.Some infrastructure programmes and learning among businesses will take someyears before the impact of change is experienced in the local economy. Taking anincremental approach enables people to plan realistically. Promoting stakeholder participation and networking implies that as stakeholdersbecome familiar through working together, and commence planning jointly, theySource:(16) Adapted from GTZ Handbook on LRED

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Toolkit for Local Economic Development Page 71will learn about the needs of other groups. Through this learning, they work onplanning a common vision and as this becomes the guide, they are likely to seepriorities differently and see more potential for joint activities. While this possibilitydoes exist, conﬂict is also inevitable, and facilitators will need to work on conﬂictmanagement. Pursuing a market driven approach means that the private sector should be allowedto lead, and wherever possible provide programmes in economic development. Thisdoes not preclude government’s role in developing the economy, though it doesimply that the private sector understands its own needs better. It also means thatgovernment’s key role is policy making, provision of infrastructure and creating aconducive climate for business to function and grow. As there are numerous challenges to LED, it is important to start by focusing onareas where there is consensus on opportunities. This keeps stakeholders on boardand creates quick wins for LED processes. The application of systemic thinking means that as plans are conceived, there hasto be a focus on changing systems which will leverage signiﬁcant change. Evenif it is something as small as people of different race groups working together inharmony, this is a signiﬁcant systemic change in the South African context. When we facilitate LED, we operate across different functional systems within thecontext of a geographical (= local) system. Systemic intervention in LED thereforerequires a thorough understanding of this local system context. Exploring the localsystem context from such an LED perspective will automatically put the main focuson the local economic (sub)system, as it is this system where we aim at introducingthe main changes. However, systemic intervention means at the same time not tolose the other local subsystems – e.g. the political system – and their inter-linkagesboth within the local system and beyond the local system borders out of sight. How can we capture this complex systemic context of an LED process in a morepractical and structured way? We suggest the following four system dimensions asthe main underlying analytical categories for understanding and intervening in LEDprocesses: LED stakeholders, LED communication and networking mechanisms,locational factors for LED, and the management and learning structure of the overallLED process. With establishing these four LED dimensions as analytical categories, we aimat two goals: First, we suggest that these dimensions together provide a holisticperspective of an LED process within the local system and assist the LED practitionersin always “keeping the bigger picture in mind” while designing and undertakingspeciﬁc LED interventions. Second, the breaking down of an LED process in four

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Page 72 Toolkit for Local Economic Developmentsystemic dimensions helps the LED practitioners in identifying speciﬁc points ofintervention which do not aim at changing the complete system instantly, but atincrementally introducing change processes which, through complex relationships,can inﬂuence the whole system. Having established the key principles, we can now turn our attention to some ofthe components of LED plans. Components of Action PlansLED action plans should provide speciﬁc details on project components including ahierarchy of tasks, responsible parties, a realistic delivery timetable, human resourceand ﬁnancial needs, sources of funding, expected impacts, results, performancemeasures and systems for evaluating progress for each project. Projects that can be implemented in the short term and that result in “early wins”play an important role in building momentum and stakeholder conﬁdence. Otherprojects will have a medium to long-term timeframe. In each case, projects shouldbe “championed” by individuals or a group of stakeholders according to interests,resources, commitment and expertise.Basic Elements of Action PlansProject Objectives: Each project should have clear objectives that meet programgoals.Project Inputs: The necessary resources needed to implement the project, e.g.capital and revenue costs, human resource inputs and capabilities, other inputs suchas land and buildings.List of Actions: A summary of the main actions to be undertaken in each project.Project Outputs: The direct result from the project, i.e., the construction of abusiness incubator.Project Outcomes: These are direct results from the outputs, e.g. an outcome of thebuilding of a business incubator could be that four new businesses be establishedthere.Project Impacts: Impacts are associated with a strategy’s goals, and the broadereffect of a project over time, even after the project is completed, e.g., the developmentof a speciﬁc industry cluster based on the innovation centre.Project Management: Who will take ﬁnancial and management responsibilityfor the project (internal to the municipality or external)? Legitimate institutionalmechanisms need to be in place or envisaged as part of the plan. It is important that

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Toolkit for Local Economic Development Page 73‘champions’ take primary responsibility for managing a project. If a ‘champion’ isnot forthcoming to manage a project, the project should be reassessed as being acredible LED project for inclusion in this particular LED strategy. By preparing a standard action planning form, decision makers can more easilycompare the merits of individual projects as they make difﬁcult selection choices.The following points are important considerations in preparing an Action Plan foreach project:• Project name and program type• A short description of the project• A hierarchy of tasks• Stakeholders and their expected contribution• Realistic timetable• Human and ﬁnancial requirements• Sources of funding with estimated costs• Expected impacts and results• Performance measures and systems for evaluating progress for each project (17) Foundations for Implementation:Partnerships, Networking and Role ClariﬁcationWhile the speciﬁc roles may vary in different circumstances, there are some cleargeneral guidelines for orientation: First, the local administrative departments shouldfocus on the creation of favourable enabling conditions to engender a thrivingprivate sector. Furthermore, government has to play an important role in addressing marketfailures such as barriers to entry for new businesses and introducing a longer-termstrategic and developmental perspective that goes beyond the planning horizonand capacity of most individual businesses. Second, the private sector and civilsociety (businesses, chambers and trade/professional organisations, as well as otherstakeholders such as NGOs and community organisations) should articulate theirinterest and commit to the creation of income and employment. Third, the exploitationof business opportunities lies best in the hand of the private sector. Cooperation isreached by enabling markets mechanisms and LED initiatives to complement eachother, hence allowing processes of an active economic development and locationalSource:(17) Local Economic Development: A Primer: Developing and Implementing Local Economic DevelopmentStrategies and Action Plans, Gwen Swinburn Soraya Goga & Fergus Murphy, World Bank, 2006

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Page 74 Toolkit for Local Economic Developmentstrategies to evolve. The management and moderation of such processes plays animportant role and can be the responsibility of any actor (public administration,organized business or civil society organizations) as long as all sides agree. In South Africa, the role of public sector in LED is spelt out in clearly. TheSouth African White Paper on Local Government (1998) introduces the conceptof “developmental local government” which is deﬁned as: “Local governmentcommitted to working with citizens and groups within the community to ﬁndsustainable ways to meet their social, economic and material needs, and improvethe quality of their lives.” The same document speciﬁes this role further with regardto local economic development objectives. It states that: “Local Government is not directly responsible for creating jobs. Rather,it is responsible for taking active steps to ensure that the overall economic andsocial conditions of the locality are conducive to the creation of employmentopportunities” The complex and important role government should and has to play in LEDprocesses can be captured through the following ﬁve principles:Focus on core competence: areas which only government can deliverAppropriate for capacity: prioritise according to resources and hierarchy ofimportanceDon’t crowd out markets: seek to develop rather than replace private sectoractivityImprove equity and access: address market failures that limit access of thedisadvantagedInﬂuence values and culture: policies, education and other government ‘signals’to encourage enterprise and competition The deﬁnition of LED as a process jointly driven by key stakeholders of thepublic, business and non-governmental sector implies the necessity of participation.Consequently, stakeholder participation is the key concept that LED leaders workat facilitating. However, effective participation, often also referred to as bottom-upprocesses, is very difﬁcult to accomplish, requiring good facilitation skills. Theseparticipatory events should stimulate local creativity and innovation, empowermentand mobilisation that is often generated by genuine participatory processes and thatis so desperately needed for economic growth. When organising stakeholder participation, the principle of “form follows function”has to be kept in mind. Frequently, committees or LED forums or committees arebeing established as a favoured vehicle to drive participatory LED processes. In

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Toolkit for Local Economic Development Page 75principle this is a good idea. LED committees or forums should only be establishedonce they have a clear mandate and responsibility. And this often only developsincrementally with different stakeholder groups mobilising around speciﬁc actionsand opportunities. But a functioning LED Forum can be a great structure to innovateand manage LED initiatives. In many countries, successful local development is based on policy networks thatconsist of various government agencies, the private sector, trade unions, NGOs,and other players. Functioning networks in general have been seen as a successfactor of development in general, since they seem to be the best organisational formto unleash creativity, innovation and the social coherence necessary for territorialdevelopment. But network patterns require a certain amount of social trust that inmany developing areas has been destroyed due to ethnic or racial tensions, distrustbetween the public and the private sector or governance issues such as corruptionor the absence of the rule of law. Networks are also the optimal organisational form for collaboration and problemsolving in cases where government Networks are the optimalcannot enforce compliance, as is the case organisational form for collaborationof LED, which has to rely heavily on the and problem solvingvoluntary initiative of the private sector.But the functioning of network patterns is highly dependent on good governance.PartnershipsPossible options include a public private partnership contract, a public-NGO/CBOpartnership and a public-public partnership, which deﬁnes a partnership betweenthe municipal council and other public sector entities. These partnerships can beused for service and infrastructure delivery or for the implementation of job creationprojects. In terms of the White Paper on Local Government municipalities can decide todeliver services directly or contract another organisation to deliver services on theirbehalf. Each municipality should assess their own capacity to deliver a particularservice effectively and to meet demand for that service before contracting anotherorganisation to deliver services on their behalf. Contracting another organisationcan only be done without giving away the municipality’s “service authority” asthey will remain responsible for regulating the provision of the service and settingcustomer tariffs. The municipal council should also ensure that the planning forthe service is properly integrated into the municipality’s IDP. They will also beresponsible to monitor the implementation of the service agreement.

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Page 76 Toolkit for Local Economic Development Contractual arrangements for project level partnerships can be structuredin a number of ways. The most common types of contractual arrangements for project-level partnershipsare:Short-term service contracts whereby the municipality set performance criteria,Management contracts where the service provider is usually responsible for theoverall management of all aspects of a municipal contract,A lease agreement where the lessee operates and maintains a municipal enterprise,andConcessions whereby the municipality enters into a contract with the externalservice provider who is responsible for managing the service enterprise an foroperating and capital funding. These partnerships must take into account the national framework agreement thatset out the principles to guide the development of municipal service partnerships.The Framework Agreement elaborates the understanding between the governmentand municipal unions regarding the objectives, principles and processes forrestructuring.ResourcesThrough joint planning processes for LED, a number of needs will be voiced andthe question of resources for these will arise. Firstly it is important to recognise that local government is not responsible forproviding or funding all the technical and ﬁnancial resources required for LED. Arange of sources for ﬁnancing LED is discussed in chapter 7 and will not be repeatedhere. The sources of technical know-how to plan feasibly for LED are importantand needs to be considered. Some of the resources which are likely to arise are:• Facilitation skills• Conducting social and economic analyses of the local economy• Budgeting for projects and programmes• Spatial planning• Enterprise development• Building ﬁnancial services• Skills planning• Marketing the local economy The list of technical expertise can be rather extensive. There is some comfort

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Toolkit for Local Economic Development Page 77however in that local governments are not required to acquire all the resourcesrequired on their own. In fact in most of the areas identiﬁed above, there aregovernment agencies that have support available in each area. The table belowsummaries support from different government departments or provides ideas onwhere support may be accessed. Programme Area Sources of Support Facilitation Skills Academics, consultants, donors Conducting social and economic analyses of the Academic institutions in the area local economy Consulting ﬁrms, DBSA Budgeting for projects and programmes Municipal ﬁnance staff, NGO staff, accounting ﬁrms Spatial planning Town planners, academics Enterprise development SEDA, Building ﬁnancial services SAMAF, IDC Skills planning SETAs, FET colleges Marketing the local economy Advertising agencies Community development programmes Social workers, academic, donors

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Page 78 Toolkit for Local Economic DevelopmentManagementMunicipalities are well placed to act as legitimate co-ordinators of LED programmesas they are also responsible for infrastructural development and land use planningfunctions, which can have a major impact on economic development of a local area.It is critical that municipalities should ensure that they have adequate institutionalcapacity to play this role. LED institutions must be inclusive and represent the full range of local stakeholders.Municipalities need to ensure that the objectives of the institution are clear. Thecore objective of programme level LED institutions is to mobilise the necessaryhuman, physical and ﬁnancial resources to achieve economic development.It is important to remember that LED is a long-term process. This implies thatthe institution responsible for co-ordinating LED must be designed in a way thatensures sustainability, consistency and stability over an extended period of time.Municipalities are permanent structures and their participation and leadership at aprogramme-level can ensure stability over the long term. At programme-level, LED institutions will need to be able to access capacity toperform basic development functions. In some municipal areas a single organisationmay have the capacity to perform functions, such as economic planning; social andcommunity resource development; physical and land use planning; commercial andindustrial targeted marketing; and local ﬁnancing. Some municipalities will be in aposition to use their own resources and capacity to drive LED programmes, whileother may wish to structure institutional arrangements in a manner which harnessesadditional resources and capacity. Institutional arrangements can be structured in away that supplements the municipality’s resources and capacities. It is important to note that when designing an LED institution the speciﬁc situationof the community and the roles with which the institution has been mandated, shouldinstruct the form and structure of the LED institution. The different roles that amunicipality can play in an LED process will inﬂuence the type of institutionalarrangement that is most appropriate in that area. Municipalities should considerwhether their role in implementing LED strategies is direct or indirect. This willguide the choice of institutional arrangement. Regardless of the form the LEDinstitution takes it must be given the capacity necessary to perform its mandatedtasks. Institutions designed to co-ordinate LED programmes must have the authority– legitimate power to act on behalf of the municipality and all other stakeholdersincluding the community – and the requisite resources available to the LEDinstitution to make it effective.

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Toolkit for Local Economic Development Page 79Municipal programme level institutionsWhen a municipality decides to establish an LED unit, these units should begin toaddress the capacity constraints at local level, reﬂect local government prioritiesand how to incorporate them into the IDP. In fact, setting up such a unit may be partof the IDP process. An LED unit will be inﬂuenced by a number of factors, suchas:• The role(s) of the municipality in LED• Co-ordination between LED and the IDP• Capacity of the municipality• Nature of the LED approach or priorities (such as attracting investment, community development)• The priorities of the IDP, since the structure chosen should follow the LED strategy adopted based on the IDP Some of the main facilitating factors for the establishment of an LED unit includerecognition that a municipality is politically accountable for LED (i.e. councillorsare key role players in this process). LED strategies and projects will have been identiﬁed within the IDP:• The IDP will highlight the need for co-ordination of all municipal activities to meet LED objectives• Budget and administrative support will be identiﬁed for LED.Purpose of an LED UnitThe purpose of an LED unit will be to:• Coordinate the implementation of municipal activities in a manner that maximises economic development. It is thus necessary for municipalities to talk to different departments to ultimately identify who will form part of the unit;• Manage the implementation of LED strategies within the IDP;• Manage and monitor LED projects through baseline and follow-up studies• Coordinate the municipality’s economic activities with those of other stakeholders• Coordinate municipal LED activities with those of other government spheres• Manage the municipal LED budget.• Maintain the LED database and Early Warning System.Location of LED UnitIt is anticipated that all municipalities will establish an IDP co-ordinating functionresponsible to the Municipal Manager or Executive Mayor. This IDP function will

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Page 80 Toolkit for Local Economic Developmentalso, therefore, play the role of co-ordinating LED strategies and activities with therest of the functions of the municipality. The LED Unit will need to be represented within this structure in order toimplement the necessary strategies and projects ascribed to the Unit. The Unit caneither be a separate Directorate, or part of another Directorate. The critical issuewill be for the Unit to have the necessary resources and inﬂuence to implement itsprogramme effectively and strategically. The unit will need to have strong supportfrom the Municipal Manager or another powerful champion to remain effective. The municipal LED unit must be established in accordance to speciﬁc rules andprocedures. The process involves drafting a report to the relevant council committeeoutlining the unit’s proposed mandate and projected budget. The council committeechairman must table a motion to establish the unit and the council committee mustpass a resolution authorising the establishment of the unit.Structure of an LED UnitThe structure of an LED Unit will depend on capacity and budgetary constraints.Moreover, the structure will be inﬂuence the number of and skills level requiredof staff, whether there is an appropriate budget to allow for work to be carried out(link to the IDP), whether there is a commitment from the municipality and whetherthe required facilities exist. The municipality should attempt to increase the levelof skills within the Unit over time. LED is not simply about project managementof community development projects. It is also about being strategic and driving avision for a local economy. It is about inﬂuencing decisions and the operations ofthe municipality as a whole.

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Toolkit for Local Economic Development Page 81 LED Programme-Level Institutions within The CommunityIn addition to establishing units within the municipality, it is important to havean institutional arrangement that allows for participation and input at communitylevel. This institutional arrangement can take the form of partnerships or forums. Itis questionable whether informal arrangements are truly effective. For this reason,it is often better to have formal co-ordinating structures such as LED Forums. Themain role of these forums is to coordinate activities of local stakeholders, mobiliseresources and commitment, and maintain a common vision. While these arecommunity- oriented forums, it is important for the municipality to be representedin this structure to serve as a link with the LED unit. The key guiding principles of these forums can be described as follows:• Must be inclusive and representative;• Must be participatory;• Must have a clear and transparent role;• Must meet regularly and adhere to proper meeting procedures;• Must receive feedback from project level committees; and• Must drive a common vision.Project-Level InstitutionsOnce a programme level LED institution has been established, it will be responsiblefor selecting the appropriate institutional arrangements for the implementation ofspeciﬁc LED projects. Because of the wide range of possible LED projects, it isimpossible to provide details of the institutional arrangements for individualprojects, nevertheless international and local experience indicate that successfulproject-level institutions share certain characteristics. Institutions chosen to manage and implement speciﬁc LED projects should:• Match the LED objectives and strategies of the project,• Inspire conﬁdence in the stakeholders,• Be capable of producing results,• Have sufﬁcient staff capacity to implement the project efﬁciently and effectively,• Be able to mobilise sufﬁcient resources for the project, particularly ﬁnancial and human resources,• Be able to transfer skills from any outside agents involved to the municipality and community members where applicable,

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Page 82 Toolkit for Local Economic Development• Be able to minimise the potential liability of the LED programme institution, the municipality and other stakeholders if the project experiences problems, and• Monitor the progress of the project and satisfy the requirements of government legislation and commercial law. LED projects may be managed and driven through a number of differentinstitutions, where the municipality plays a less direct role. The municipality shouldseek to co-ordinate various project level initiatives drawing them together into acoherent LED programme for the area.

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Toolkit for Local Economic Development Page 83 Potential Areas for Action PlansIntensiﬁcation of Enterprise SupportEvery enterprise needs a variety of services to survive, grow and compete, and failureto gain access to these services is often a major obstacle to the competitivenessand growth of enterprises. While larger ﬁrms can often create internal functionsto address their requirements for speciﬁc services (e.g. accounting or marketing),many smaller ﬁrms depend on external service providers. Research has shown thata strong relationship exists between the usage of quality business services and theeconomic performance of a small enterprise. From this perspective, market access to business and ﬁnancial services are seenas critical inputs into the production and operational processes of small ﬁrms. Laterwe will consider market access from the perspective of small ﬁrms’ access to endmarkets to sell their products to. The reality is that business service markets do not always functioning optimally.This has an impact on the supply of business services and the demand for businessservices. In an increasingly global business environment, small ﬁrms in remotelocalities are under pressure to be more competitive, and hence increasingly requirebusiness services that add value. The failure of a speciﬁc business service marketto function optimally can contribute to enterprise failure or an uncompetitive sectorleading to weak economic performance and even stagnation. Some of the obstacles to the performance of business service markets are:• Insufﬁcient understanding of the needs of small ﬁrms, or lack of awareness that certain services exist,• High costs associated with ﬁnding, contracting and interacting between supply and demand (search costs)• Competition by publicly funded or subsidised services, even if they are inferior to privately supplied services• Services not providing sufﬁcient value to customers, hence not being worth the price• Complacency by service providers, meaning that the market does not respond to demands, or service providers do not know how to improve their service This ﬁeld was until recently known as Business Development Services, or BDS.Attention was mainly focused on services that directly contributed to the growthand development of small enterprises. A distinction was made between ﬁnancialand non-ﬁnancial services. The ﬁnancial service sector responded to the needs

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Page 84 Toolkit for Local Economic Developmentto small ﬁrms ﬁrst, and was followed by the BDS ﬁeld a few years later. This isone of the reasons why microﬁnance has penetrated rural settings in a number ofdeveloping countries. Business Services includes all services that small ﬁrms use in order to perform,compete and grow. In fact, the same thinking and approach would apply to any servicethat can be commercially applied in a speciﬁc region or sub-sector. Examples arenetwork brokering, destination marketing or auctioneering services that are withincertain sub-sectors. If these services are not available to sub-sectors in a region, thegrowth and performance of the sector can be inhibited, especially for smaller ﬁrmswho cannot gain access to these services from other areas (or internally like largeﬁrms do). While some still maintain that access to ﬁnance and ﬁnancial services is stillthe ultimate solution to economic growth, others believe that access to a varietyof different business services (including ﬁnancial services) are critical. The tablebelow contains a few examples of business services. Examples of business services (including ﬁnancial services and other services)Business planning and management services Production advice and industrial servicesProduct design and testing Human Resource ManagementEnvironmental services Marketing and advertising servicesAccounting, tax and auditing services Financial managementAccess to ﬁnance Export servicesCourier, postage and transport services Internet, e-mail and communication servicesFrom a LED perspective, business services hold the key to increasing the performanceand growth of small ﬁrms within a speciﬁc geographic context. The interests inbusiness services are threefold:1 Business services are seen as a catalytic lever to improve the competitiveness and performances of whole sub sectors. It allows for the mechanisms to directly improve the performance of large cross sections of ﬁrms without directly engaging with all the ﬁrms in a region.2 The Business service sector has experienced major growth worldwide in GDP contribution and job creation in the knowledge intensive industries. Many countries see business services as one of the key export sectors and as an absorber of new skills that are replacing traditional primary and secondary sector employment and investment. Another perspective is that business services are mainly provided by small ﬁrms.

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Toolkit for Local Economic Development Page 853 There is an increasing recognition that subsidised and generic service provision does not contribute as much to economic performance and competitiveness as diversiﬁed and specialised service provision does. Service providers that specialise and focus are able to add more value per transaction, and can spread new ideas and innovations across larger segments of customers through their interaction with ﬁrms. Due to the nature of small ﬁrms, entrepreneurs and business owners are expectedto possess a very wide range of skills. When there is pressure on small ﬁrms to bemore competitive, or when these ﬁrms grow, the generic skills of business ownersoften fall short of the demands. This is when small ﬁrms wanting to grow andexpand need the assistance of specialised service providers that can add valuethrough the business services that they sell the small ﬁrm. These service providerssell their knowledge and experiences to the small ﬁrm, enabling the small ﬁrmto expand or compete better. Small ﬁrms, and especially micro ﬁrms, where thebusiness owner has limited skills or only technical skills in a speciﬁc industry areeven more vulnerable when they do not have access to business services. In thelast 10 years there has been increasing international recognition that generic orpublicly supplied business services are not having sufﬁcient impact nor sustainableperformance, limiting their role mainly to public information and start-up support.Instead, the focus is shifting to the development of functioning business servicemarkets. While some business services are generic and are used by a wide variety of ﬁrms(like courier services) other services are more speciﬁc to certain sub-sectors. Itmay also be the case that in certain cases business services providers specialisein a speciﬁc target market thus they are referred to by a certain service category(e.g. Legal services) or they can be very speciﬁc to a certain sector (legal servicesto ﬁrms that engage in international trade). Financial services are similar in beinga highly diversiﬁed sector. While some ﬁrms need access to basics like ﬁnancialplanning or a business loan, other ﬁrms require working capital ﬁnancing, debtorinsurance, or venture capital.The Goals of Enterprise SupportIn an ideal situation, local entrepreneurs have access to a diverse range of ﬁnancialand business services at good quality and reasonable prices. Service providers arecompetitive in terms of value, price and offering; and are constantly striving toimprove their service offerings to their customers by being more responsive to theirneeds. Small ﬁrms are aware of the various options available to them, and canengage with reliable service providers in order to meet their service requirements.Thus the range of business services in the market place is diversiﬁed and reaches to

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Page 86 Toolkit for Local Economic Developmentthe service consumers. In the LED context, it is especially three issues can hinder the evolution offunctioning service markets: Information ﬂows, trust and competition. The coreobjectives for LED interventions in the context of BS services are therefore to:• increase information ﬂows between supply and demand of business services, thus increasing overall awareness of the gaps in supply, the service offerings on the market, and the use of the different services• increase the trust in transactions by improving the knowledge of services and its use• increase the responsiveness and competitiveness of the business service supply.Information in the market placeThe awareness raising is not a once of activity, but should be seen as an ongoingfunction that must take place in the marketplace, hence the involvement ofinstitutions and public agencies in the role of advocacy (of speciﬁc unmet needs)and information sharing. In essence, the costs, time and risks for service providersand small ﬁrms to ﬁnd each other and to enter into transaction must be minimised. Free information ﬂow means that suppliers are aware of the demands andconstraints faced by enterprises, and strive to respond to these needs with serviceofferings that are valued by the small ﬁrms, hence purchased. Research has shownthat small ﬁrms are willing to pay for services that show the desired impact inthe small ﬁrm (if they are aware of the service and the impact). Service providersand supporting institutions make information on the service offerings and serviceapplications available to potential service consumers. Thus small ﬁrms become aware of the offerings and the impact of using theseservices and know where to buy it should they require the service (or morespeciﬁcally, the beneﬁt of using the service). It should be noted that the end goal isnot that everything is known about each service, as this would be very overwhelmingfor the small ﬁrms, but that they know where to go to ﬁnd answers. This is referredto as the ‘awareness’ of the existence of certain services or solutions. The goal isto develop the knowledge about where to ﬁnd certain service providers once theyare needed, hence the involvement of industry associations, chambers of commerceand other institutions.A trusting environment where transactions can take placeMechanisms to reduce the risk of transacting between parties (supply and demand)are important. The idea is that service providers should be willing to interact with orpursue small ﬁrms as customers because they know that they can do ‘safe’ business

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Toolkit for Local Economic Development Page 87with them. Small ﬁrms need to know that they can engage with service providersthat will be honest about their abilities and the resulting impact of their services.Agreements, contracts or credible references are all mechanisms to achieve a moretrusting environment. One factor that increases the risk of small ﬁrms to engage with service providersis when the offer of the service providers is not clearly deﬁned. Small ﬁrms need toknow what they are paying for, how much of their time it will absorb, and what theimpact (or return on investment) would be. Service providers are trying to managethe unknown capacity and other potential shortcomings in the small ﬁrm. Thisincreases the risk of the both parties. Research has shown that small ﬁrms tend to appoint service providers that arerecommended to them by family, friends and people that they trust. In fact, small ﬁrmswould rather trust the inexperience of a family member that to engage with a serviceprovider they do not know. Thus mechanisms to introduce service providers, or therecommend them should be considered. Again, chambers of commerce, industryassociations that facilitate networking events could be an important stimulus to givesmall ﬁrms exposure to service providers.Competitive and responsive service marketsWhile business service markets in urban areas tend to be more competitive, ruralareas tend to be underserved. This is caused by a multitude of reasons including thechallenges of acute skills shortages in rural areas in service providers, supportinginstitutions and small ﬁrms; weak information ﬂows and a poor institutionalenvironment. Added to this increased costs of doing business (due to distance,remoteness of markets) and the poor infrastructure and you have all the elements ofa vulnerable business environment. In an ideal marketplace, service providers are aware of the needs of small ﬁrms,and strive to address these needs with valuable and competitive offers. This meansthat as the nature of the demand change, so will the offerings of the supply side.This is referred to as the responsiveness of the market to provide a variety of serviceofferings that responds to different needs. In a responsive or competitive servicemarket, the suppliers will constantly be searching for new techniques, approachesand target markets in order to remain proﬁtable. Small ﬁrms would also beneﬁtfrom this competitive market in that they can negotiate with service providers basedon their own speciﬁc needs, or they can choose between different service providersdepending on the offerings available.What are can be done?Major challenges for creating access to efﬁcient and effective support structures for

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Page 88 Toolkit for Local Economic Developmentthe local entrepreneurs are:• Improving the ﬂow of information between supply and demand of business services. This involves raising the awareness of the issues and constraints of small ﬁrms to potential service providers, or promoting services that address speciﬁc needs to potential buyers. The ﬂow of business information is often supported by non-market players like chambers of commerce, industry associations, development agencies and tertiary institutions. These institutions may not be aware of their role in the promotion of certain business service markets.• Identifying speciﬁc business services that are not being provided adequately to a speciﬁc target group. Analyse the cause for the market structure and identify and facilitate the closure of the gap between demand and supply. This requires that a facilitator guide a group of existing service providers through a process to develop a suitable service offer, and may even require some additional support like capacity building of the service providers and marketing campaigns to promote new services to potential buyers.• A third more intensive approach would be to develop new services and service providers from scratch. This is only feasible were no service provision exists and where it is certain that the required service will be sustainable. The reality is that in places where there is no supply due to a lack of skills there usually is not enough demand to make a service feasible. This may be a viable approach if the supply failure is caused by the market design or other external inﬂuences like monopolies or state interference. A failure in a speciﬁc business service market can be identiﬁed either:• Indirectly, through the analysis of a speciﬁc target sub-sector, value chain or cluster. This could be through the application of speciﬁc techniques like PACA (Participatory Appraisal of Competitive Advantage), Value Chain Analysis (see below), or through normal development work in a speciﬁc ﬁeld (e.g. Tourism development)• Directly, through the analysis of a speciﬁc business service market. This is when a speciﬁc service market is targeted for analysis using instruments like a Market Assessment or other kinds of market research. The use of the market development approach is rapidly expanding to cover notonly business and ﬁnancial services, but also agricultural services, certain publicservices and environmental sectors. (18) The approach above can perhaps be more simply understood as below:Source:(18) Local and Regional Economic Development (LRED) Towards A common framework for GTZ’s LREDinterventions in South Africa, Anja Rücker, Gabriele Trah, 2006, unpublished

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Toolkit for Local Economic Development Page 89 In the 1970s and 1980s, thinking about business development services was similarto that on ﬁnancial services, i.e. that business operators needed to be trained andthis had to be subsidised and provided to enterprises owned by the poor operatingin the informal sector. However, as the success and impact of microﬁnance grewso interest in business development services declined. By the millennium, a newschool of thought emerged. It was not dissimilar to the patterns of microﬁnancedevelopment. One of the major proponents of the Market Development Approach, Gibson(2000) deﬁnes its goal:“Develop a vibrant and competitive, private sector of relevant, differentiated servicesconsumed by a broad range and signiﬁcant proportion of small businesses.” (19) The primary departure from previous approaches is the development of a“private sector” of business support services. A further point of departure is theapparent emphasis on small businesses with exclusion of microenterprises basedon the unlikelihood of payment for services. The relative costs and beneﬁts ofindividualised support for microenterprises may have been a further consideration.The motivation for this approach is the recognition that services are at the heartof successful economies. Gibson’s thinking is that development of the servicessector would beneﬁt from the addition of business services to consumer servicesand public administration. The probable inﬂuence in this thinking is the need for regular innovation in businessto remain competitive. Given the multi-skilling required in small businesses, the useof specialised services is likely to build efﬁciency and in the long run also promoteinnovation. A further inﬂuence was probably that sub-contracting as a means tobuild efﬁciency and competitiveness among big businesses had proven to be fairlypopular in the nineties. These practices, in conjunction with the development ofmicroﬁnance increased the potential for and appeal of declining donor dependence.Whatever the inﬂuences on the market development approach, it is conceivable thata competent, varied and sustainable business support sector is likely to reap rewardsfor the economy on a number of fronts. While previous approaches focussed on donors building capacity among agenciesto deliver improved services, market development focuses on improving thefunctioning of markets for business development services. In this approach thedonor becomes the facilitator instead of the provider. The issues with and resultsfrom past approaches are tabulated below.Source:(19) The Market Development Approach, Alan Gibson, 2000

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Page 90 Toolkit for Local Economic DevelopmentProblems with Past Approaches (20) Characteristics Results State/donors as providers Low outreach – among every group SMEs as weak beneﬁciaries Dependence on external support with limited sustainability Public services Limited relevance, low impact Providers decided what’s good for SMEs Market distortion No transactions Bloated costs, inefﬁcient practices Continuous generalised support The hope of the Market Development Approach (MDA) is that a functional marketfor business development services will be created and sustained by demand frombusinesses. The characteristics and expected results from the MDA are tabulatedbelow.The Hope of the MDA (21) Characteristics Results Private sector as provider Outreach can be increased by market incentives to grow SMEs as consumers Sustainable –supply-demand interaction Services offered in markets Impact due to demand by SMEs Transactions Market is developed Facilitative support based on market constraints Cost appropriate to market The motivation for market development is premised on:• Past failures• The dangers of being supply led• Equity concerns not being addressed• Market distortion, and most importantly• The growing realisation that businesses operate in an environment of market- based transactional relationships. If donors and policy makers are to improve business development services forSMEs it means that the market environment for services has to be improved. In order to implement the MDA, a three-stage process is called for. The ﬁrst isto analyse the market context, identifying constraints and opportunities for marketdevelopment. The second stage is to construct a vision for the future. The thirdstage is to work out appropriate interventions to realise the vision for sustainableBDS.Source:(20) and (21) Gibson, 2000

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Toolkit for Local Economic Development Page 91 In analysing the market context, the supply and demand sides have to bedisaggregated. On the demand side, there are usually small and medium enterprisesthat require research and development, product development, advocacy, skillenhancement, information provision, regulation and co-ordination. On thesupply side, there is the state, the private sector, business networks, membershipassociations, and the non-proﬁt sector. To build a match between the supply anddemand sides, there has to be decisions and solutions for the problem of who paysand who does. Gibson’s’ primary assumption is that providers of BDS do exist inthe private sector and that information about these are needed by SMEs. Furtherassumptions about the divergence between supply of and demand for BDS aretabulated below:Divergence between Supply of and Demand for BDS (22) BDS Providers BDS Consumers Limited information about market opportunities Limited information or awareness about problems or solutions Skills deﬁciencies – technical or business Valuation problems affect willingness to pay Operational deﬁciencies – resources, systems, Limited resources to assess or purchase structures services Inappropriate products Environment- distortion of behaviour Environment – distortions and barriers to activity Based on this picture, the key role in promoting BDS is to build business linkagesbetween suppliers and consumers. The types of interventions recommended onthe supply side are to develop technical assistance, develop (demand-focused)ﬁnancial and BDS products and promote venture capital. On the demand side itis recommended that vouchers, matching grants and information is provided tocatalyse market functioning. The role of government in this view now extendsbeyond provision of public goods, addressing externalities, regulating monopoliesand overcoming imperfect information. Gibson suggests that governments need tofoster markets and promote clustering. This is of course in addition to protecting thepoor, providing social insurance and redistributing assets. Some of the conditions laid for implementing a market development approachare to:• Take a clear view of the sustainability objective by constructing a functional vision for how markets will work in the longer term;• Understand how the private sector will be able to promote varied and continuous BDS services and innovations;Source:(22) Gibson, 2000

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Page 92 Toolkit for Local Economic Development• Ensure that services are ﬁnite with a clear exit point;• Build interventions on market constraints, and• Ensure that interventions are facilitative rather that delivery oriented. Although the intention of the MDA was to focus on and build BDS for small andmedium enterprises, many agencies extended and have used the approach to designinterventions for microenterprises. In developing countries with large numbers ofmicro enterprises in the same type of activity and lacking access to services andlinkages, the approach has proven fairly effective. For example, poultry producersin a rural Eastern European environment were able to grow their market shareconsiderably by introducing them to buyers for urban retailers. In keeping with the idea that market functioning should be enabled in thepromotion of BDS, USAID’s AMAP (Accelerated Microenterprise AdvancementProject) promotes a value chain approach to BDS for small and micro enterprises.This approach identiﬁes the opportunities and constraints to growth in a particularindustry and takes the additional step of identifying the factors that drive ﬁrms’behaviour in markets. “These factors include:• Mutually beneﬁcial relationships among ﬁrms that are related horizontally and vertically;• Learning that takes place through vertical and / or horizontal cooperation; and• The depth and breadth of beneﬁts from participation in a value chain. In order to build competitiveness among small and micro enterprises requires abroader view of the industries in which they participate. A picture of the opportunitiesand constraints for improving competitiveness is built through a systemic viewof the fabric of the relationships between ﬁrms in a single industry. A diagnosticframework for a value chain analysis would include the following ﬁve elements:• End market opportunities• Enabling environment (national and international)• Inter-ﬁrm cooperation: Vertical Linkages• Inter-ﬁrm cooperation: Horizontal Linkages• Supporting markets (sector speciﬁc and non-sector speciﬁc, including ﬁnancial services)• Firm-level Upgrading (product and process upgrading). The connectedness of these markets is illustrated by The Value Chain. (23)Source:(23) The Value Chain Analysis, Freeman M, USAID, 2005

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Toolkit for Local Economic Development Page 93 THE VALUE CHAIN Global Markets National Markets Supporting Markets Export Wholesale Sector Speciﬁc Processing Cross Cutting Production Financial Input Supply National Enabling Environment Global Enabling Environment End markets determine quality and standards as they demonstrate the demands ofthe end user. The enabling environment which is local, national and internationalis affected by trade agreements and standards. They have a signiﬁcant inﬂuence onthe constraints and opportunities for growth of an industry. Standards however canbe very expensive for MSEs to build. Herein, of course is where opportunities liefor donor and government support in increasing market access. The national policy and regulatory environment is critically important in thefunctioning of markets and enterprises. It should create incentives for growth andhave channels for involvement in the policy process. This of course applies equallyat local and regional levels of policy and enforcement of regulation. Vertical linkages are the relationships among ﬁrms generating raw materialsthrough to production and distribution of the ﬁnal products to end-user markets.These relationships are critical for transferring learning and embedded ﬁnancialand business (skills and know-how) up and down the value chain. More efﬁcienttransactions up and down the value chain increase competitiveness in an industry.Horizontal linkages are important for small ﬁrms working in an industry. Linkagesamong many small ﬁrms can promote bulk-buying, meeting large orders and buildingeconomies of scale, thereby increasing their competitiveness and bargaining power.These linkages can be fostered by associations, formal or informal networks, brokersor traders. The use of horizontal or vertical linkages among ﬁrms can promote win-win relationships that reduce transactions costs, achieve scale and create incentivesfor adoption of more value added functions or activities. Vertically related ﬁrms

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Page 94 Toolkit for Local Economic Developmentcan build win-win relationships leading to increased market share, new skills and awide range of support services. Support services are essential for growing or building competitiveness inan industry. These services cover a broad set of areas which include access toraw materials, equipment, ﬁnancial services, business support services (legal,accounting, industrial, etc.). Given the importance of these services, it is optimalthat they should be provided by the market. Such services can play a critical rolein building competitiveness especially if it is associated with new technologies ortechnical services. Firms improve competitiveness through improving production efﬁciency (leadingto lower prices) or product quality (leading to market differentiation). A ﬁrm orindustry’s ability to constantly innovate determines its ability to stay ahead in themarket. This in turn depends on the availability of technology, services and learningchannels. Value chains where learning mechanisms are institutionalised are themost competitive. While promoting considerably more depth in the analysis of market functioning,the value chain approach takes the market development approach to a new level inanalysing interventions to promote improved market functioning. A further area which requires some thinking in enterprise support is how LEDunits can deal with street trading.

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Toolkit for Local Economic Development Page 95 Formalising the Informal Sector / Street Trading in South AfricaThere are four critical factors to be recognised when considering the prevalence ofstreet trading in South Africa:1 Most street trading is the result of the push of unemployment rather than the pull of independence or entrepreneurship2 There are very high levels of over-trading among street traders which often leads to low proﬁt levels for the traders. Simultaneously, they crowd in areas and target customers with limited buying power.3 People choose trading as a business because of the low skill levels required which in many cases matches their skill inadequacies4 Street traders are often an unorganised business sector or they are at the mercy of ‘leadership’ which does not always represent their best interests. In cases where there are organised groups, women tend to be underrepresented as they lack the conﬁdence to take ofﬁcial positions in organisations and they have no time for organisational activities as they have more responsibilities than men do. The implications of these factors are:• Many if not the majority of street traders would take a paying job instead if they could get one. This split ambition could jeopardise their keenness to learn how to improve their businesses.• With low skills, diversifying the types or activities to increase competitiveness among businesses is likely to prove highly challenging.• While it always possible to learn irrespective of age or educational background, learning is complex for people who have had poor education or have been outside formal learning situations for extended periods.• Lack of organisation or undemocratic leadership among groups of businesses makes it difﬁcult to negotiate solutions. The exclusion of women, who dominate the sector, would be a serious omission at decision making levels Any attempt at formalising street trading must take into account the fragility ofthe circumstances of traders. They are prone to high levels of emotionalism andinsecurity when confronted with options for changing their circumstances, especiallyif these emerge from ofﬁcial sources which could threaten their livelihoods. Tradersdo however, respond positively to discussions about improving their businessprospects and regularising their income streams. Any change processes shouldtherefore be well planned, consultative and incremental. The four factors aboveshould be considered in enhancing their livelihoods.

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Page 96 Toolkit for Local Economic Development Firstly, in studies done with traders they have identiﬁed their inadequate skilllevels as the ﬁrst barrier to improving business performance. As they often donot consider over-trading as a factor that counts against proﬁtability, they needsupport with understanding markets and catering to demand factors. Secondly,attempts at trying to “teach” have to use methods which make them ‘safe’ and holdtheir attention given the challenges faced by adult learners. Thirdly, despite theircollective disadvantages, there are entrepreneurs among street traders and othermicro-enterprise operators and one does see and hear about innovation and learningby doing that occurs. There are also possibilities for building their conﬁdence,enabling businesses to diversify and offer sustainable solutions for creating longer-term “employment” among micro-enterprises. Among the hierarchy of needs whichcould emerge from discussions with micro-enterprises, the option of ‘permanent’premises could be placed high on their list of priorities. The prudence of this in theface of their fragility and low awareness levels needs to be questioned. In otherwords, “boxing” a whole bunch of problems is not going to make them go away. In view of these issues, the following processes are recommended:• Consult with traders about their learning and other interests to improve businesses• Think through a variety of learning methods that could be used outside of classroom learning• Separate concepts and business processes that micro-enterprises want to learn about and express these as a series of modules / knowledge groups that would beneﬁt their business performance and diversiﬁcation strategies• Make sure that diversiﬁcation and understanding market needs is a key part of learning areas• Although classroom learning is not recommended, if it is unavoidable, ensure that learning is related to their circumstances, is highly participatory and that there is a high level learning from each other. Avoid book learning and lecturing at all costs as it runs the risk of damaging their conﬁdence. Group work and ﬁeld exercises are likely to prove more popular.• Test the learning methods, e.g. make a pilot edu-tainment video and ask their views on this, or test SMSs as a way of sending knowledge-bytes about understanding and catering for market needs• Release learning in an incremental process, whether it be on television, discussions in community halls or video showings in people’s homes• Selling learning videos, tapes, pay for SMSs at accessible prices can also create more income for some

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Toolkit for Local Economic Development Page 97• Lift the barriers to business information in the country – street traders and most micro-enterprises do not have access to the internet, so the use of media within their reach is essential• When the learning process has taken root and existing businesses start to see opportunities, it is likely that a number of entrepreneurs will start to diversify, start product and services improvement processes and seek more ‘afﬂuent’ markets.• Work with entrepreneurs on linking to better opportunities, they usually come up with the best ideas for themselves.• As these processes start to take root, it would be optimal to work with the businesses to seek premises with a view to building diversiﬁed market share, and providing better products and services. These could be sheds for crafters, or disused premises owned by municipalities or kiosks offered by companies• One option for premises is stalls around taxi ranks which offer a diverse range of products and services that people want to pick up on their way home. Having done their ‘homework’ business people will know better what to offer, rather than the current range on offer. A good comparison here is Japanese small markets. As use of trains is the norm in Japan and people live in small homes, every station exit route is lined with small stalls offering a range of daily needs. People then buy on the way home daily. There is thus regular trade for the businesses and fresh products / food daily. It is also customary to take sweet gifts when visiting or going to dinner. It is always possible to buy gift wrapped packages on the way there on any day of the week.• Encourage them to think of theme markets linked to other businesses or basic functions they could offer big businesses in their localities. With BEE being a prerequisite for companies, even purchasing chickens, fruit or beaded wire- hangers among other things could lead into more ‘sustainable incomes than the current over-trading. Given current growth rates, established businesses could well be willing to expand through sub-contracting a range of rudimentary functions• Build bridges for better product design and quality. E.g. Enable people in food businesses to acquire health and safety standards. This could lead to more stable incomes, by cooking and delivery to homes and businesses. Link backyard metal workers and car repair people to SETA funds to acquire certiﬁcates of competence which could enable them to extend their markets.• Work with the businesses on setting rental levels or purchasing of stalls in ‘markets.’ This is likely to create a tradable asset for the business owners.

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Page 98 Toolkit for Local Economic Development• Work with the traders on establishing maintenance and advertising and security for their markets. In summary offering businesses the opportunity to diversify, understand changingmarket needs and preferences and increasing proﬁtability holds more promise of‘sustainable’ jobs than simply providing shelter for micro-enterprises. It is essentialto recognise that there is unlikely to be as many viable businesses as there are micro-enterprises or traders at present. On the other hand offering opportunities to thosewilling and able to diversify is more likely to increase the potential for the growthof micro-entrepreneurs who will then become employers. Any attempt to simplyprovide premises is likely to bring forth resentment if the ‘wrong’ type of structuresis adopted or even worse, there could be a scramble for premises which could alsocause resentment among those who could be excluded. Municipalities are advisedto acquire the support of external facilitators to work with street traders. Once theyare organised, many of the services they require can be provided on a partial subsidybasis or local companies could be asked to support their development as part of theBEE programmes or through corporate social responsibility.

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Toolkit for Local Economic Development Page 99 Sustainable Developmental Community InvestmentIn our discussion on forms of support required by businesses, access to ﬁnancialservices was one that was mentioned. While it was believed that businessesrequired credit, international learning has shown that they require ﬁnancial servicesas savings and insurance play a key role in building assets and safety nets. We startby understanding how these ideas evolved.The Evolution of Best Practise in MicroﬁnanceThe ﬁrst part discusses the progress of ﬁnancial sector development internationallyand locates the South African context in that process. The roots of micro ﬁnance internationally, date back to the 1970s. At that time,the idea of growing the “informal sector” now known as the micro enterprise sectorgained popularity as one of the means to expand the economy and reduce povertyby inclusion of entrepreneurs on the margins. It was assumed, then that credit wasone of the means to grow this sector and further assumed that this credit should besubsidised as the poor would not be able to afford cost recovery rates. Simultaneously,in Asia and Latin America, innovators were developing new products and methodsfor providing credit to the poor. By the 1980s, it was realised that subsidised creditwas dependent on “political fashion” and it was also learnt that it was possible foragencies providing credit to the poor to become ﬁnancially sustainable. A furtherkey piece of learning was that the poor needed access to savings as much as theyneeded credit. Given that asset building is a key feature of poverty reduction, thisis not surprising. Due to this, there was a shift from micro credit to micro ﬁnance,based on the recognition that the poor (read un-banked) required the same set ofﬁnancial services as the rest of society (24). In addition to the types of products andsystems discussed here, there is widespread recognition for credit unions, villagebanks and other types of institutions, which can and do service the micro marketefﬁciently and sustainably. The addition of micro insurance as providers of safetynets for the poor is a relatively recent advent in micro ﬁnance. Thus by the 1990s an international movement on providing ﬁnancial servicesto the poor had grown. The power of this movement is reﬂected in the vision ofWomen’s World Banking, “Building ﬁnancial systems that work for the majority.”Source:(24) This view is further articulated in the New World of Micro Enterprise Finance edited by ElizabethRhyne and Maria Otero, Kumarian Press, 1994. Here a new approach was devised known as the FinancialSystems Approach, which recognises that the ﬁnancial system needs to be expanded to include the poor andunbanked.

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Page 100 Toolkit for Local Economic DevelopmentThe basic tenets of this movement are:• That provision of ﬁnancial services to the poor is desirable and necessary;• Offering credit to the poor can contribute to poverty reduction when the credit is invested for good returns as in a business but this depends on the opportunities and markets in the environment where the business is run;• Despite the fact that credit provision in itself does not reduce poverty, provision of safety nets for the poor through safe savings is essential;• That the poor can afford to pay cost recovery rates for credit as the returns on the investment are more important than the cost of the funds;• While cost recovery rates are possible, it is still important to build efﬁciency and scale;• Institutional efﬁciency is built by increasing the case loads of staff, reducing transaction costs of the lender, and achieving and maintaining high recovery rates and scale by building on the numbers of clients reached by the institution;• Sustainability becomes possible by progressively increasing efﬁciency levels and building outreach, i.e. institutions become proﬁtable by reaching large numbers of clients at the lowest possible cost; and• As poor people often do not have assets, collateral substitutes are necessary. These may take the form of group guarantees, peer pressure, community standing or other means. The experiences of a number of institutions achieving the conditions outlinedabove, have led to a new movement, which focuses on the commercialisation ofmicro ﬁnance. In India, SEWA and SHARE and in Latin America, especially inColombia and Bolivia a number of institutions have been trading on money marketsto access funds to on-lend since the millennium. These institutions are now linked toratings agencies (e.g. PlaNet Finance and Micro Rate), the results of which enablethem to link with sources of ﬁnance. Another and probably more popular option forcommercialisation is transformation from NGO or non-proﬁt status to becominga bank. There are now a number of successful examples of such transformation.Amongst others, these include the transformation from Prodem to Banco Sol inBolivia, K-REP to K-REP Bank in Kenya and ACLEDA in Cambodia. The choice to transform to a bank is by no means simple and involves radicalrealignment of the institution especially at the levels of ownership and governance.The key change at the levels of governance is the shift from a poverty or developmentorientation to one of meeting investor expectations. In addition, there has to be re-consideration of the products offered, the image of the institution, the condition ofthe premises, strengthening of technology, systems and human resources, as well as

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Toolkit for Local Economic Development Page 101a new orientation to marketing. This international movement has also built on policy and institutional frameworks.These are designed to encourage the development of an environment conducive tothe proliferation of a variety of institutions to build an inclusive ﬁnancial sector.At the policy level, it is recognised that there is a need for a regulatory framework,which allows for the development of the various services that are needed. One ofthe features of such liberalised ﬁnancial frameworks is that interest rate regimesshould be unregulated to allow cost recovery (at minimum, though proﬁtability isoptimal). The framework also allows for a variety of institutional types such as creditonly NGOs and private ﬁnanciers, credit and savings cooperatives, village banks,commercial banks, business NGOs, and grass roots savings groups (ROSCAs). Theextent of the regulation of such institutions depends on the risk associated with theproducts they offer. In the late 1980s and early 1990s, based on the success of Palli Karma SahayakFoundation (PKSF) in Bangladesh and the Sri Lanka National Development Bank,there was recognition for wholesale ﬁnanciers to serve micro ﬁnance institutions.As South Africa had started moving towards democracy in the early nineties, policymakers were persuaded to adopt the wholesale or apex model to stimulate, ﬁnanceand capacitate the microﬁnance sector. Although the feasibility of such institutionshas since been challenged internationally, South African policy still applies thismodel through a housing and enterprise wholesaler. In South African policy provides for access to credit and savings services areaccessible through banks3. It has been recognised internationally that savings andcredit are equally important in serving the ﬁnancial service needs of businesses andthe poor. Development ﬁnance has now been extended to include savings to buildassets, insurance to build safety nets and credit for asset building and productivepurposes such as housing, agriculture, and enterprise development. The predominant approach now adopted among a host of international agenciesis termed the sector development approach. UNCDF is one of the proponents of theapproach. Sector development is promoted through co-operation among relevantgovernment departments, the central bank, donors, MFIs, banks and any othergrouping which is involved in ﬁnancial sector. The motivation for this approachis that balanced growth or development is more likely with a ﬁnancial sector thatcaters for the needs of the majority. (See www.uncdf.org) Based on this approach, LED units can approach SAMAF, the South AfricanMicroﬁnance Apex to be linked to local microﬁnance institutions. Khula EnterpriseFinance and the IDC can be contacted for guarantees or ﬁnance for medium and

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Page 102 Toolkit for Local Economic Developmentlarger enterprises. LED units can also establish a ﬁnance committee which workson linkages between local businesses, national agencies and banks in their area.Businesses will beneﬁt from understanding how ﬁnancial institutions work andwhat is required to access services. If the need to establish institutions arise in the local context, there are two typesof registration which should be considered:Community Development TrustsA Community Development Trust (CDT) is a way of managing funds and assets,which have been reserved for a speciﬁc purpose within LED. A CDT in LEDwill usually act as a channel and administrator of funds or other assets for theimplementation of LED initiatives. A CDT comes into being when the founder ordonor hands over the control of certain funds or assets to another party (the trustee),who must administer those funds and assets for the purpose of LED. Neither thedonor, nor the trustee enters the arrangements for personal beneﬁt. The key advantages of establishing a trust are that it exists independently of itstrustees and beneﬁciaries providing limited liability for its trustees and beneﬁciariesand has certain tax advantages. The disadvantages are that the trust is not a “legalperson” and has can be ineffective vehicle for implementing developmental projects.CDTs are geared to channelling funding and are often used together with otherinstitutions that are geared towards managing the implementation of projects.Section 21 CompaniesA Section 21 company is a non-proﬁt company. It may not distribute any proﬁtsit may make to its members. A Section 21 company that is formed for the purposeof implementing LED must therefore reinvest any proﬁts it realises back into LEDimplementation. Section 21 of the Companies Act (Act 61 of 1973) provides foran association of at least seven persons or organisations to be incorporated as acompany if the association meets the following requirements:• The Section 21 Company must be formed for a legal purpose,• Its objective must be to promote a cultural or social activity or group interest,• It must intend to use any proﬁts or other income it might make in promoting its objectives and• Its memorandum of association must state that no income or property of the association shall be distributed to its members in any way, but will be used to further the objective.• It must also state that, if the company should be closed down, any assets of the association after the payment of its creditors will be transferred to another

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Toolkit for Local Economic Development Page 103 association or institution having a similar objective. The establishment of a Section 21 Company is signiﬁcantly more complex thanthe establishment of a trust. The Section 21 Company has certain advantages forLED. The Section 21 Company has the status of a legal person and has limitedliability in the case of bankruptcy. The independence of the Section 21 Companyallows for ﬂexibility and effectiveness and has the structure and management styleof a commercial enterprise, which operates to enhance transparency minimising anyabuse of the company. Disadvantages include the fact that they can be expensiveand time-consuming to establish and their structure may make decision-makingmore complex and time-consuming. A negative aspect of its independence is thatthe founders may lose control of the company. Legal advice should be sought when deciding on establishing trusts or section 21companies for LED programmes.

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Page 104 Toolkit for Local Economic Development Integrated Development Programmes or IDPsUnder the new Constitution municipalities have been awarded major developmentresponsibilities to ensure that the quality of life for the citizens is improved. Thenew role of local government includes the provision of basic services, promotingdemocracy and accountability and instating processes towards eradication ofpoverty. Preparing an IDP enables municipality to be able to manage the process offulﬁlling its developmental responsibilities. This will ensure the proper management of the planning process and requiresclose co-ordination between those responsible for the IDP, and those responsiblefor the LED in a municipality. The district council, in consultation with its localmunicipalities, must adopt a framework for integrated development planning:• To determine procedures for co-ordination, consultation and alignment between the district and the local municipalities and therefore bind them both.• To guide each local municipality in preparing the process plan.• A time schedule for the planning process must be included• Roles and responsibilities need to be deﬁned.• How the process will be monitored must be stated. Integrated development planning is an interactive and participatory process.The municipality must therefore allow and encourage public participation. It mustfacilitate consensus around the vision of the LED within the locality and within anynetwork or linkages that are promoted. Due to the participatory nature of the IDPprocess it takes a municipality approximately 6 – 9 months to complete an IDP andthis timing is closely related to the municipality budget cycle. During this perioddelivery and development continues. The IDP is reviewed annually, which couldresult in necessary amendments of the IDP plan.Advantages of an IDP in local economic development• Through the IDP, the municipality is informed about the problems affecting its municipal area and, being guided by information on available resources, is able to develop and implement appropriate strategies and projects to address the problems.• It helps municipalities make more effective use of scarce resources. The municipality can focus on identiﬁed and prioritised local needs taking into consideration local resources.• This enables them to search for more effective solutions by addressing causes, rather than just allocating capital expenditure for dealing with symptoms.• The IDP helps to speed up delivery by providing a tool which guides where

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Toolkit for Local Economic Development Page 105 investment should occur.• It encourages public participation and offers decision-making mechanisms that will arrive at realistic project proposals taking into consideration the limited resources.• Where there is a clear municipal development plan, private investors and sector departments are more willing to invest their money.• The IDP will strengthen democracy and institutional transformation through transparency and inclusiveness. It engages different socio-economic groups where people live and work.Integrated Development Programmes (IDPs) (25)The Integrated Development Planning is a process, through which a municipalityprepares a strategic development plan. It draws together all the developmentobjectives of a municipality including Local Economic Development (LED), andenables strategies to realise those objectives to be formulated in an integrated way.This means that everyone is working towards the same goal. The IDP is a comprehensive plan for the development of the local area. It includeslong-term vision, assessment of existing level of social and economic development,development priorities, development objectives, spatial framework and landdevelopment objectives, operational strategies, municipal budgeting and otherresource allocation. By drawing together the development objectives, priorities, strategies and budgetsin this way, the IDP helps to ensure co-ordination between LED and other initiativesof government. The IDP is now the basic unit of planning for government as awhole. The LED Regeneration Study forms part of the IDP. The LED toolkit should beused from the preliminary steps of the IDP, which include:• the assessment of the current situation in the municipal area,• the assessment of the needs of the community,• the prioritisation of needs and the setting of goals to meet those needs. It is important to note that the IDP process is the single, inclusive planning processwithin which other processes must be located. LED must be fully integrated withinthe IDP. Indeed, if a municipality is being developmental and responding to localdevelopment problems, then it needs to establish a clear vision and objectivesSource: Local Economic Development Training Manual A Resource Book For Municipal Councillors And Ofﬁcials,(25)Department Of Provincial And Local Government , October 2001

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Page 106 Toolkit for Local Economic Developmentthat tackle these issues. For example, poverty and unemployment remain the keychallenges facing municipalities in South Africa. IDP objectives need to includetargets for meeting these challenges. LED strategies can then be used to assist inthe meeting of the objectives. The entire working of the municipality will need tobecome more integrated and more focused on developmental outcomes.The Legal Status of an IDPThe Municipal Systems Act (MSA, 2000) provides municipalities with a legalframework in which to plan for integrated development. The MSA requires everycouncil to prepare its own IDP, which will guide them for 5 years. This meansthat the integrated development plan is linked to the term of ofﬁce of the electedcouncil. The newly elected council can adopt the IDP of its predecessor should itfeel appropriate to do so or develop a new IDP (taking the existing documents intoconsideration). The form and content of an IDP document is largely subject to thediscretion of the municipality, with exception of those contents prescribed by theMSA.The IDP ProcessThe ﬁrst step in the planning process is the drawing up of an IDP process plan.This will ensure the proper management of the planning process and requires closeco-ordination between those responsible for the IDP, and those responsible for theLED in a municipality. The district council, in consultation with its local municipalities, must adopt aframework for integrated development planning.• To determine procedures for co-ordination, consultation and alignment between the district and the local municipalities and therefore bind them both.• To guide each local municipality in preparing the process plan.• A time schedule for the planning process must be included• Roles and responsibilities need to be deﬁned.• How the process will be monitored must be stated. Integrated development planning is an interactive and participatory process.The municipality must therefore allow and encourage public participation. It mustfacilitate consensus around the vision of the LED within the locality and within anynetwork or linkages that are promoted. Due to the participatory nature of the IDP process it takes a municipalityapproximately 6-9 months to complete an IDP and this timing is closely related to themunicipality budget cycle. During this period delivery and development continues.

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Toolkit for Local Economic Development Page 107The IDP is reviewed annually, which could result in necessary amendments of theIDP plan.Responsibility for Managing the IDP ProcessIntegrated Development Planning is a mechanism to manage the affairs of themunicipality and the municipal area and hence, it holds a very high status inthe municipality. In terms of the Municipal Systems Act (MSA), the ExecutiveCommittee or Executive Mayor has the responsibility to manage the preparationof the IDP or to assign this responsibility to the municipal manager. In mostmunicipalities the IDP co-ordinator, linked and reporting directly to the ofﬁce ofthe municipal manager and the Executive Committee or Mayor, is appointed tomanage the process. Preparing an IDP is a legal requirement of the MSA, and the responsibility toprepare and adopt IDP lies with municipalities. However, this is not the onlyreason why municipalities must prepare the plans. Under the new Constitutionmunicipalities have been awarded major development responsibilities to ensure thatthe quality of life for the citizens is improved. The new role of local governmentincludes the provision of basic services, promoting democracy and accountabilityand the eradication of poverty. Preparing and having the IDP therefore enablesthe municipality to be able to manage the process of fulﬁlling its developmentalresponsibilities.Institutional Arrangement and CapacitiesThe elected council is the ultimate decision-making forum on IDP but the integrateddevelopment planning process is participatory in nature and requires input fromvarious role-players. For this reason the municipality must adopt an appropriateapproach and also put in place appropriate structures to ensure effective participationby all stakeholders. Integrated development planning is an inter-governmental system of planning,which requires involvement of all three spheres of government. Some contributionshave to be made by provincial and national government to assist municipalplanning. This promotes intergovernmental coordination by facilitating a system ofcommunication and co-ordination between local, provincial and national spheres ofgovernment. The Metros, the Local municipality and the District municipality need to prepareand adopt an IDP. The District municipality must also provide support to poorlycapacitated local municipalities and facilitate the compilation of a framework,which will ensure coordination and alignment between local municipalities and thedistrict. District Councils play a key role in the co-ordination of the IDP process,

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Page 108 Toolkit for Local Economic Developmentand can facilitate the development of appropriate regional LED strategies throughthe IDP process. The District Council can access technical and ﬁnancial supportfrom national and provincial government, as well as regional developmentalinstitutions. The Provincial Department of Local Government is responsible for:• Co-ordinating training• providing ﬁnancial support• offering general IDP guidance• monitoring the process in the province. The province is also responsible for facilitating co-ordination and alignmentbetween district municipalities including facilitating resolutions for disputesbetween the municipalities. Province is also responsible for assessing IDPs andfacilitating the alignment of IDPs with sector department policies, programmesand budgets. The various Sector Departments must provide relevant informationon sector department’s policies, programmes and budgets. They need to contributesector expertise and technical knowledge to the formulation of municipal policiesand strategies. They must be guided by municipality’s IDP in the allocation ofresources at the local level. The National Department of Provincial and Local Government must issuelegislation and policy in support of IDP, including IDP guidelines. They areresponsible for providing ﬁnancial assistance and a national training framework.It is their responsibility to establish a Planning and Implementation ManagementSupport System.IDP Implementation CycleIDP implementation generally occurs in a cycle, which is made up of four stages,as shown in the illustration.

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Toolkit for Local Economic Development Page 109 1. PLANNING (Identiﬁcation of issues, objectives & strategies) 2. ALLOCATION & 4. MONITORING & COMMITMENT OF REVIEW RESOURCES (Human and ﬁnancial) 3. IMPLEMENTATION (Execution of projects) During the planning stage performance indicators are formulated to monitorimplementation and its impact. The outcome of monitoring sometimes results inthe adjustment of the plan and implementation programme.Completion of an IDPOnce the IDP has been completed, it has to be submitted to the municipal councilfor consideration and approval. The council must look at whether the IDP identiﬁesthe issues that affect the area and the extent to which the strategies and projectswill contribute to addressing the problems. It must also make sure that the IDPcomplies with the legal requirements before it is approved. Before the approval ofthe IDP, the municipality must give an opportunity to the public to comment on thedraft. Once the IDP is amended according to the input from the public, the councilconsiders its approval. Once a municipality has adopted its IDP it must submit a copy together with the“process plan” and the “framework for the IDP” to the MEC of the province forassessment. The MSA does not require the MEC to approve the IDP, only to assessthat the IDP complies with the requirements of the Act and also that it is not inconﬂict with IDPs and strategies of other municipalities and organs of state.Advantages of an IDP• Every municipality should have an IDP.• Through the IDP, the municipality is informed about the problems affecting its municipal area and, being guided by information on available resources, is able

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Page 110 Toolkit for Local Economic Development to develop and implement appropriate strategies and projects to address the problems.• It helps municipalities make more effective use of scarce resources. The municipality can focus on identiﬁed and prioritised local needs taking into consideration local resources.• This enables them to search for more effective solutions by addressing causes, rather than just allocating capital expenditure for dealing with symptoms.• The IDP helps to speed up delivery by providing a tool which guides where investment should occur.• It encourages public participation and offers decision-making mechanisms that will arrive at realistic project proposals taking into consideration the limited resources.• Where there is a clear municipal development plan, private investors and sector departments are more willing to invest their money.• The IDP will strengthen democracy and institutional transformation through transparency and inclusiveness. It engages different socio-economic groups where people live and work.• It facilitates the redistribution of resources in a consultative process.

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Page 112 Toolkit for Local Economic DevelopmentHave you planned for management structure for LED? If not consider your plansand design structures that will suit your plans ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Review your LED plans and reconsider them in the light of the requirements forIDPs __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Toolkit for Local Economic Development Page 113 CHAPTER 6 VIGILANCE IS THE PRICE OF PROSPERITY • Understanding the need for consistent and regular monitoring and evaluation • Building knowledge of sound M and E techniques • Deciding how to measure i.e. the complexities of measuring development • Assigning responsibility for data collection and analysis • Managing change processes in LED

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Page 114 Toolkit for Local Economic Development Understanding The Need For Consistent and Regular Monitoring and EvaluationWe have referred to reviewing the achievement of goals in earlier chapters of thistoolkit. The process of reviewing outcomes is referred to as monitoring and evaluationin development-speak. The term monitoring refers to the on-going examinationof whether implementation activities are occurring as planned. Evaluation askmore in depth questions about whether the outcomes of the activities which wereimplemented. It is useful to distinguish between inputs, resources, activities, outputsand outcomes at this stage:INPUTS – are the technical and ﬁnancial resources which are invested in makinga change in a particular situation occur. E.g. if a municipality seeks to increase thenumber of businesses in its local economy, it could devise a plan in partnership withother local businesses. The plan may include publicising the raw materials availablein the economy for processing, or support businesses to seek partners in clusteringprogrammes. Alternatively developers may be assigned land for constructionof suitable premises for the businesses being induced to move to the area. Thecosts of planning, advertising, conducting research and consultation are inputs orcontributions into the process.RESOURCES – refer to the land, the infrastructure and the costs of constructionof local business premises.OUTPUTS – would be the new buildings available. It is useful to remember that anoutput is not a guarantee of achieving the desired change.OUTCOMES – are the measure of actual change which occurs. The occupancyrates of the new business premises or the jobs created as a result of the investment,the improved incomes in households where employment has occurred are allexamples of outcomes that could result from the investment in the cluster or newbusiness premises. The example and terminology above shows the importance of understanding therisks involved in making plans and investments. It also illustrated that a plan maynot come to fruition, i.e. businesses may not choose to relocate or invest in a localeconomy. However if a plan is well researched and suitable consultative processeshave been conducted with businesses, the risks can be decreased. Decisions about how LED programmes are to be monitored start at the planningstage, where stakeholders decide what outcomes they wish to achieve. Planningof programmes is therefore often concerned with assessing which activities willachieve the desired outcomes.

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Toolkit for Local Economic Development Page 115 Once programme activities are planned each one should be accompanied bymeasures to assess whether the implementation is taking place and measures toassess whether the outcomes are achieved. As there can be considerable investmentin LED programmes, monitoring and evaluation (M&E) is critical to ensure timelyimplementation and progress towards outcomes. This review process is essential inreﬂecting on returns on investment and to ask whether social and economic changeid actually occurring. It is useful to establish the criteria and processes for M&E atthe planning stage. The establishment of such M&E systems will be fruitful if threeaspects are integrated:• The system must be clearly understood as a learning tool, not as an instrument for controling behaviour. M&E systems too often apply rigid criteria and ignore the open discussions around failures, thus undermining the learning culture they are designed to support.• These systems must be systematically linked to the planning and management frameworks for future action. If not, they are rendered futile, as their ﬁndings will not inﬂuence the further steering of the process in a signiﬁcant way. In South Africa, it is speciﬁcally important to link M&E systems for LED to the annual IDP planning and review cycles, where a high percentage of future resource are allocated. A way to establish these linkages is to connect the M&E system institutionally with the IDP planning cycle. The indicators of the M&E system for LED should be identical with those used for reviewing LED activities in the IDP, the reorientation or redesign of LED activities should be based on the reﬂection of the success and failures, and the planning of new activities should be based on the impact model that the LED process is based on and on the concrete lessons learnt.• The documentation of the ﬁndings and their distribution among the range of stakeholders must be guaranteed and organised in a user-friendly way. If this doesn’t happen, the learning process fails to be inclusive, and will not produce a broad local knowledge base that strengthens the competitiveness of the area.Why Monitoring and Evaluation? (26)• A well-designed monitoring and evaluation system will help answer the question ‘how do I know when I have reached my Objectives?’• It provides a basis for accountability in the use of resources.• Used carefully at all stages of the project cycle, monitoring and evaluation can help to strengthen strategy and project design and implementation.Source:(26) Primer on LED, World Bank, 2006

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Page 116 Toolkit for Local Economic Development• It helps to build trust with businesses, ﬁnancial institutions and investors by openly sharing results.• The emergence of recorded beneﬁts early on helps reinforce ownership and early warning learning by all regarding emerging problems allows action to be taken before costs rise.• A well-designed M&E system allows for mid-course corrections.• A reliable ﬂow of M&E information during implementation enables managers to keep track of progress and to adjust operations to take account of experience.• It allows for the interventions to be adapted to reﬂect the changing needs of target businesses, sectors and companies.• It provides important information on how to use limited resources more efﬁciently by directing investments to programmes and activities that have the greatest impact on productivity, job growth or investment.• It allows for the benchmarking of LED interventions against examples of good practice.• It demonstrates the impact of LED interventions in terms of poverty reduction, city GDP growth or employment creation to clients, citizens and potential investors.• It can help to justify budget requests for further LED interventions. Building knowledge of sound M&E techniquesWhile M&E starts at the planning stage, it is also a key component of the LEDimplementation plan. Indicators should be clearly laid out at the project level tomeasure inputs, outputs, outcomes and impact for each project. These will becombined to determine programme success and provide an overall assessment ofan LED strategy. Regular semi-annual and annual meetings to discuss results areconstructive elements of the ongoing planning and learning process. It is useful to conduct a monitoring Start thinking about M&E at theand evaluation strategic workshop at the consultation stage of the LEDstart of a programme. It should establish programmean M&E timetable including scheduledreviews of content and process indicators.An independent audit of key indicators through repeated municipal and businesssurveys is crucial to measuring the progress made since the baseline local economyassessment. These can be quantitative and qualitative in nature. Qualitativeassessment is sometimes omitted as quantitative assessment is considered moreimportant. It is true that calculating the impact from a quantitative perspective is

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Toolkit for Local Economic Development Page 117essential; however in developing countries, where there are high levels of inequality,it is as important to gather qualitative data in assessment processes. Qualitative dataprovides more insight at the level of communities and can provide more informationabout why certain outcomes occur or not. Monitoring is the continuous assessment Plan for qualitative and quantitativeof a strategy and/or project implementation information collection to obtain ain relation to agreed schedules, and of the broader picture of impactuse of inputs, infrastructure, and servicesby project beneﬁciaries. Monitoring provides managers and other stakeholders withcontinuous feedback on implementation. It identiﬁes actual or potential successesand problems early to facilitate timely adjustments to project operation. Monitoringaccepts the project design as given; it measures progress, is focused on performanceand occurs continuously. Evaluation is the periodic assessment of a project’s relevance, performance,efﬁciency, and impact (both expected and unexpected) in relation to statedobjectives. Project managers undertake interim evaluations during implementationas a ﬁrst review of progress, a prognosis of a project’s likely effects, and as a meansof identifying necessary adjustments in project design. Evaluation challenges thedesign of a project, draws conclusions and makes judgments, is focused on theeffectiveness of the programme or project and thus it becomes a key milestone in theproject cycle. Evaluations can be divided into two categories. ‘Process evaluations’focus on the implementation of programmes or projects, while ‘outcome evaluations’focus on programme results. Process evaluation is concerned with how a programme can be improved whileoutcome evaluation is concerned with whether the programme actually works.Managers of LED programmes would beneﬁt from building both forms of evaluationinto the programme design.Process Evaluation and Outcome EvaluationProcess evaluations overlap with monitoring activities and both are concerned withproject or programme implementation. Process evaluation involves the systematicexamination of implementation quality on a periodic basis and programmes aremonitored internally with monitoring reports generated at different levels on a weekly,monthly or quarterly basis. LED programmes may involve a mid-term processevaluation, which will include management reviews, resource expenditure studiesor ﬁnancial audits. A process evaluation may recommend changes in programmeactivities, target groups, the management structure or ﬁnancing strategy. Outcome evaluations are centrally concerned with determining what would have

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Page 118 Toolkit for Local Economic Developmenthappened to programme recipients and the LED task if the intervention had notoccurred. Outcome evaluations primarily seek to measure the ‘value added’ ofundertaking a particular LED project intervention. Outcome evaluations ideally cover four key parameters. Primarily, evaluationsmust account for and enumerate outcomes. This can be achieved by assessing whathas happened to the target population and how it is different from before. Enumeratingoutcomes will also involve outlining whether programme objectives were achievedand if unanticipated outcomes occurred. Secondly, outcome evaluations measureprogramme effectiveness. This is achieved by assessing the degree to which theintervention resulted in observed changes in the target population. Third, outcomeevaluations must assess whether programme beneﬁts outweigh programme costsby conducting a cost-beneﬁt analysis. Cost beneﬁt analysis weighs upLastly, a sound outcome evaluation will the funds spent against the moneyassess impact by determining whether saved or generated by the project.there has been a marked improvement inthe situation that the policy or programme was designed to address. Assessing the impact of an LED strategy also implies the need to separate the For example, unemployment might outcomes that are a direct consequence decrease by 10 percent in a year of the LED strategy from those that are a after the implementation of an LED result of external frole-players such as an strategy; however, this ﬁgure could improvement in the national economy. in part be a result of an increase in An approach to take in this case could national GDP. be to compare the ﬁndings from the LEDstrategy assessment with the same indicators selected randomly from differentlocalities as well as from the regional and national averages. It is possible then toidentify changes in these indicators that are common to all localities, and thereforenot related to the speciﬁc LED strategy. As result, the outcome evaluation can isolatethe external deviations from the direct impact of the LED strategy. This, however, isdifﬁcult in most countries as there is neither data nor funds available. Nevertheless,efforts should be taken to monitor and evaluate at a project and strategy level. The general rule should be to develop the most rigorous evaluation methodologytaking into account the signiﬁcance of the investment as well as practicalconsiderations related to resource availability and technical capacity.

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Toolkit for Local Economic Development Page 119Integrating M&E into LED Stages In our illustration of the stages of LED, reviewing the achievements and blockagesappears as the ﬁnal stage, though in reality it needs to be planned and incorporatedfrom the ﬁrst stage. Here, we discuss how M&E is planned through each stage ofLED processes. ���������������������������������������� ���������������������� ���������������������������������� �������������������������������������������������������� ���������������������������������������������������M&E in Stage 1: Organising for LED (27) During the organising stage, there are opportunities to begin thinking about the kind of monitoring and evaluation framework that will be necessary throughout the life of the project.This includes:• Working out of what kind of long-term institutional mechanisms are needed to ensure the M&E of the Strategy, e.g. a Strategy Monitoring Team with members from different sector committees; and• Designing a monitoring and evaluation plan for report back mechanisms throughout the life of the Strategy Formulation. This can include an Annual Report, a Quarterly Progress Report, an Annual Meeting, regular press releases and bi-weekly meetings. Consultation processes during the organising phase, allows for the M&E system to be participatory. This offers a host of beneﬁts that build on the beneﬁts of conventional M&E systems.Source:(27) Local Economic Development: A Primer Developing and Implementing Local Economic DevelopmentStrategies and Action Plans, Gwen Swinburn, Soraya Goga & Fergus Murphy, World Bank 2006

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Page 120 Toolkit for Local Economic Development These include:• Improved performance of development and poverty alleviation programmes;• Improved local learning, management capacity and skills;• Strengthened collaboration among key project stakeholders and greater ownership of projects;• M&E systems that are more sustainable since they are more relevant to local capabilities, skills and resources;• Increased cost-effectiveness of participatory monitoring and evaluation (PME) systems as they use low-cost methods of data collection and analysis. Conventional monitoring and evaluation focuses on approaches and systemsthat are determined by outside experts. Participatory monitoring and evaluation isbased on negotiating the content of evaluation approaches and systems to meet theneeds of the local people and other key users of M&E information such as donors,municipal government and national authorities. In participatory monitoring and evaluation, the evaluator plays the role of afacilitator/trainer/coach guiding groups to reach consensus on key M&E issues andbuilding their capacity to use M&E to improve programme performance. The twoapproaches are contrasted below: Conventional Evaluation Participatory EvaluationWhy Accountability. Usually summary To empower local people to initiate, judgments about the project to control and take corrective action determine if funding continuesWho External experts Community members, project staff, facilitatorsWhat Predetermined indicators of success People identify their own indicators of Principally cost and production output successHow Focus on ‘scientiﬁc objectivity’. Self evaluation; simple methods adapted Distancing of evaluators from other to local culture; open immediate sharing participants; uniform complex of results through local involvement in procedures; delayed, limited access evaluation processes to resultsWhen Midterm and completion Any assessment for programme improvement; merging of monitoring and evaluation, hence frequent small evaluations

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Toolkit for Local Economic Development Page 121M&E in Stage 2: Assessing the Local Economy The Local Economy Assessment should be viewed as an opportunity to collect baseline data in the economy (description of the economy before the implementation of the LED strategy) so that the impact of the LED strategies can be monitored along its implementation.M&E in Stage 3: Formulating Plans The planning stage should include the determination of key performance indicators from which the progress toward objectives will be measured. The team should also formulate a plan, as part of the data collection methodology, to measure progress made on the key performance indicators. The formulation phase is also a good time to determine who is responsible for monitoring the strategy’s implementation.In the strategy implementation phase, the monitoring and evaluation team shouldconsider and develop a monitoring and evaluation plan including:• How they will collect data for monitoring the objective key performance indicators;• How they will collect data for monitoring each project’s progress; and,• The kind of procedures and report back mechanisms to ensure continued accountability on progress to all stakeholdersM&E in Stage 4: Strategy Implementation By this stage, the institutional arrangements for monitoring the implementation of the strategy should be in place.M&E in Stage 5: Strategy Review Strategy Review is the evaluation of the relevance of the strategy and its implementation.

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Page 122 Toolkit for Local Economic DevelopmentM& E Through Stages of LEDLED Process M&E PracticeStage 1: Organising for LED Decide on framework for M&EStage 2: Assessing the economy Collect data to reﬂect state of economyStage 3: Formulating Plans Identify indicators to reﬂect progress Select quantitative and qualitativeStage 4: Implementing LED Assess progress towards targetsStage 5: Reviewing LED Assess social and economic impact: measure against indicators selected Use a combination of participatory and scientiﬁc methods to evaluate impactIndicators for LED M&EThere are six types of indicators that can be used to assess the impact of LEDprojects. These types of indicators are:Input indicatorsInputs are the resources and capacity mobilised to make an LED goal happen. Theyrefer to a range of resources, both material and personnel, which are allocated toLED projects and programmes. The input indicators measure the resources requiredfor formulating LED strategies and delivering LED projects and programmesOutput indicatorsOutputs are speciﬁc activities, While indicators are essential for reviewingprocesses and projects that progress, learning and improving impact,directly result from the inputs. M&E task teams or committees should not getThrough the mobilisation bogged down with deciding on complex sets of indicators. It may be optimal to select indicatorsof resources and capacity which are easy to understand and track.(inputs) for LED these shouldresult in an output such as amarketing campaign or the establishment of a Business Support Centre. Outputindicators measure the direct results of the effort and resources put into LED.Efﬁciency indicatorsThe relationship between inputs and outputs should be considered in assessing howefﬁciently an LED project was established. This relationship shows how efﬁcientlya municipality or other stakeholders used their resources and capacity to develop aparticular LED project. These can be compared to other municipalities to establishwhat resources other municipalities used to establish a project of a similar type, andassess their own efﬁciency against the benchmarks set by other municipalities.

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Toolkit for Local Economic Development Page 123Outcome indicatorsOutcomes refer to the direct consequences or results that follow from an activity,project or process (outputs). Development outcomes are the change in conditionsthat result from LED projects and measure the direct results of LED projects,processes and activities in the short-term.Impact indicatorsImpacts reﬂect the implications of an LED project for society as a whole. Impactindicators measure the longer-term implications of LED projects, processes andactivities for broader society, such as an improvement in the quality of life of acommunity over a long-term period.Effectiveness indicatorsThese measure the relationship between inputs and outcomes. This relationshipwill show how the resources allocated to the project resulted in the changes inthe development of the local area and economy. The key question facing LEDpractitioners is whether there are more effective ways of supporting the establishmentof new businesses. For example, were the inputs invested in the project the mostappropriate ways to establish new businesses (outcomes) or are more appropriateLED instruments available to achieve the desired outcome?

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Page 124 Toolkit for Local Economic Development Deciding How to Measure: The Complexities of Measuring DevelopmentMeasuring inputs and outputs are easier to verify than outcomes and impacts. Onecan quantify the resources (inputs) that went into an LED project and determine theoutputs by quantifying the projects, which resulted from these inputs. It is more difﬁcult to quantify outcomes and impacts, as they are more value ladenand subject to interpretation. It is sometimes difﬁcult to say whether outcomes arethe direct results of LED projects or of other reasons. Impacts can only be determinedover a long period of time and this makes it difﬁcult to determine whether theimpacts are a result of LED projects or other frole-players. The ﬁrst challenge facing LED practitioners responsible for monitoring LEDprojects and programmes is to isolate those outcomes and impacts, which can bedirectly linked to an LED project or output. Municipalities should start by measuring input, output and outcome indicatorsbefore measuring the results of their LED projects and programmes. It isrecommended that only after municipalities have developed and tested systemsfor measuring these indicators can they at a later stage then introduce impactindicators.Using a framework to measure indicatorsThe “inputs, outputs, outcomes and impact” framework lay the basis for measuringthe results of LED programmes. The framework must be used from the outset ofthe programme to ensure that there is agreement on the indicators to be used againstwhich the ﬁnal results of the project will be measured. In the ﬁrst stage of the planning process, the municipality develops a vision for thelocal area, a set of developmental objectives and a set of strategies to realise thoseobjectives. For example, if the municipality has chosen the promotion of SMMEsas its LED strategy, it can begin to design an LED programme to promote SMMEs.As part of the planning process, the municipality must decide which outputs arerequired or which instruments are to be used to promote SMMEs. If the municipalitydecides that the establishment of a Business Advice Centre is the best instrument topromote SMMEs, they must then work out what inputs are required. These inputsmay include municipal resources and additional resources to be mobilised throughfund-raising or partnerships with the community and business sectors. The municipality must then set clear objectives for the Business Advice Centre,which will inform the development of outcome indicators. If one of the objectivesis to establish new businesses in the Information and Technology (IT) sector it will

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Toolkit for Local Economic Development Page 125be important to measure how many new IT businesses are established through theBusiness Advice Centre. The objectives of the Business Advice Centre will also inform the developmentof impact indicators. For example, the municipality aims to promote redistributionof resources by creating opportunities for small companies to become establishedIT businesses. In summary, the municipality using the “inputs, outputs, outcomes and impact”framework has now determined:• Which strategy to follow (SMME development) to realise objectives (develop IT industry)• Which instrument or project (output, a Business Advise Centre) it will use to implement the strategy• Which resources (inputs – funds and materials and personnel capacity) are required to establish a Business Advice Centre• What the objectives of the initiative are (outcomes –new IT businesses established)• How the results (outcomes – number of clients, types of clients per sectors, number of new businesses established, sectors in which businesses established, turnover of businesses established, number of jobs created by new business and NGO capacity) of the LED initiative can be measured• What the desirable long-term impact of the LED project is (impact – redistribution) The framework also helps the municipality to assess how efﬁciently the LEDstrategy has been implemented by looking at the relationship between the inputs(funds and material and personnel capacity) and outputs (the establishment of aBusiness Advice Centre). Effectiveness can be measured by looking at the relationship between inputs andoutcomes. Expected outcomes through the establishment of new IT businessescould include:• Short and long term job creation,• Training and human resource development,• Inter and intra-sectoral linkages,• Urban renewal,• Rural development,• Women’s development,

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Page 126 Toolkit for Local Economic Development• Co-operative governance,• Developmental local governmentCheck-list of important questionsThe framework is most often used in combination with the ‘Practical DeliberationEvaluation’ approach, which provides a “check-list” of important questions thatmunicipalities should take into consideration when evaluating LED projects.These questions can reﬁne the process of measuring the results of the LED project.Municipalities can involve a wide range of local stakeholders in an evaluationworkshop where these questions are discussed. This type of workshop creates aforum for community groups to make inputs and comments into the evaluationprocess, and brings a wider perspective to bear on the evaluation of the results ofLED projects. The ﬁrst set of questions is aimed at determining whether the LED instrument,project, tool or activity is appropriate. This is known as “instrument veriﬁcation”.The following are instrument veriﬁcation questions:• Does the instrument, tool or project create jobs?• Does it have spin-off effects to other ﬁrms, such as indirect beneﬁts?• Is the LED initiative the most efﬁcient way of achieving the desired results? The second set of questions is aimed at determining whether the outcomes ofthe LED project are appropriate to the local context. This is known as “outcomevalidation”. The following are “outcome validation” questions:• Has the project resulted in the increased number of jobs?• Are outcomes addressing the key social and economic problems in the locality?• Do outcomes deal with the constraints of the sluggish economy?• Are there different outcomes for the different parts of the local community?• Do local disadvantaged groups beneﬁt from the project? The third set of questions is aimed at assessing the long-term social anddevelopmental impact of the LED project. This is known as the “social impact”.The following are “social impact” questions:• Do the outcomes of the project contribute to the development of society as a whole?• Do the outcomes reduce inequality in opportunity or income?• Is there increased participation by marginalised groups within the community as a result of the project?• Are local choices for the local residents increased?

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Toolkit for Local Economic Development Page 127• Are there any negative societal consequences, such as crime and pollution?Measuring results The Department of Provincial and Local Government is in the process ofdeveloping a common set of indicators and a framework that can be used across thecountry. Until these are released, municipalities are free to develop their own M&Esystems. Such innovation could contribute to national thinking in the M&E ﬁeld. Over the next few years it is likely that South African municipalities will experimentwith a range of approaches to measure LED results. It is recommended thatmunicipalities network with one another and pool their knowledge and experienceas the monitoring of LED projects in South Africa becomes more reﬁned. Assigning responsibility for data collection and analysisTypically, an LED strategy would include a range of stakeholders. The possiblegroupings which could be included are tabulated below: (28) Public sector Private Sector Community sector Local government Chambers of Commerce Individuals State government Board of Trade Ward committees Health Authority Business Associations Church groups Transportation Authority Large Corporations Youth groups Institutions of Higher Learning SME representatives Environmental groups Education Board/Authority Private developers Voluntary service groups Utilities News media Historic societies Professional associations Cultural and arts groups Higher learning establishments Educational groups Utilities Groups representing City /area improvement groups minorities etc. As discussed in Chapter 5, the range of projects and programmes, would includedifferent groupings of stakeholders. We have also established that participatorymonitoring should be considered and used where applicable. The involvement ofstakeholders is therefore to ensure on-going participation as well as ensuring that theneeds of stakeholders are being met through LED programmes. The example in thetable below provides some ideas of the types of stakeholders that can be involvedin different LED M&E events. The sample is not exhaustive and municipalitiesSource:(28) Local Economic Development, Wim Eisig, The World Bank Group, undated

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Page 128 Toolkit for Local Economic Developmentand other coordinators of LED processes are encouraged to explore different waysof assigning roles for stakeholder groups in M&E. A further possibility is to geteducational institutions to train and supervise students. In this way the funds spenton M&E are retained, students learn participatory and quantitative methods of M&Eand they gain work experience.Sample of Events to Measure Project Progress (29) Events Purpose Products Stakeholders Annual planning Deﬁne level of input, Annual work plan Management outputs, indicators, related activities Individual plans Project staff Annual budget Institutional stakeholders Gantt Chart (Updated) Work Agreements Mid-term Respond to new Progress report adjusted Management evaluation opportunities Review leading Designs and Project staff indicators implementation plans Sustainability of Donors assumptions Partners Annual stakeholder Evaluate impact Evaluation results Management meeting progress Progress review Report on lessons Project staff learned While stakeholder involvement is encouraged, it must be remembered that someadherence to scientiﬁc methodology ensures accuracy. It will be important thereforethat staff in municipalities, especially those involved in LED are trained in M&Emethods of data collection and interpretation. They can be the leaders and managersin M&E and train other groups to support and participate in their efforts.Source:(29) Local Economic Development: A Primer Developing and Implementing Local Economic DevelopmentStrategies and Action Plans, Gwen Swinburn, Soraya Goga & Fergus Murphy, 2006

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Toolkit for Local Economic Development Page 129Managing Change Processes in LED Change is at the heart of LEDAt the beginning of this chapter, we identiﬁed learning as one of the reasons forbuilding monitoring and evaluation practice into LED. As South Africans in a youngdemocracy, we need to remember we are starting to accumulate experience in manyforms of development practice. Like any other groups with little experience, we arebound to make inappropriate decisions or to expect change to happen faster than itdoes. In view of this, we need to build in mechanisms which allows for learning totake place and to correct processes towards achieving the goals we choose. At the ﬁrst stage in LED, we have stressed how important it is to bring as manystakeholders on board as is possible, given the realities of South African society.Some groups may be resistant or not have the conﬁdence to participate freely. Somegroups may not fully understand the reasons for and processes involved in jointassessment and planning. As capacity building is integral to meaningful LED, usethe opportunity to build knowledge and conﬁdence. Taking time to be inclusive isworth the effort, as exclusion could come at the cost of sacriﬁcing goal achievement.Investing time and effort at the organising stage is valuable for building relationshipsand breaking down the barriers of the past. When we get to the review stage of LED, some of the key questions we will beasking are:• What is happening? What are the intended and unintended impacts – positive or negative?• To whom is it happening? What differences are there among target groups and unintended clients, especially the poorest?• Why is it happening? Is the programme the cause or other stakeholders?• What can or should be done about it? How can we increase the positive and avoid the negative?• How can accountability of recommended changes be assured? – How will it be monitored and by whom? Considering these questions suggeststhat there are possible consequences Creating a learning culture and learningwhich we did not anticipate at the mechanisms are integral to LED processesplanning stage. The stronger therelationships and the capacity building

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Page 130 Toolkit for Local Economic Developmentat the organising stage, the more skill and honesty we will be able to apply at thereview or M&E stage. Some valuable lessons in LED processes which have emerged from GTZ’s LEDprogrammes in South Africa are worth noting at this stage: LED facilitation has to support the institutionalisation of the LED process in away that allows local role-players to reach these beneﬁts without undermining thebasic principles of LED: participation, process orientation, incremental approachesand the focus on locally available resources and realistic local solutions. In order to do so, we have identiﬁed 3 key areas for LED facilitation to supportthe institutionalisation of the LED process: The design and development of adequate structures to generally manage LEDprocesses, the creation of a learning culture and learning mechanisms that integratesthe constant improvement of the process, and the development and implementationof a strategic orientation for the diverse activities within the overall process. First, a certain clariﬁcation of the overall process management at an early stagecan be crucial to unlock blocked dynamics and to prevent power struggles, and canbecome an important element of capacity building for local role-players especiallyin areas where LED management institutions already exist. Second, learning isoverproportionally created in the early stages of the process, and should thus becaptured and fed back from the very start. Sharing the generated knowledge alsocontributes to building of social capital and the capacitation of local stakeholdersand is thus closely interlinked. Finally, providing strategic orientation on the processfacilitates cooperative governance and provides important guidance to improvingthe locational quality of the area. Build Adequate Management Structures for LED ProcessesA multi-stakeholder LED process yields both opportunities and challenges: On theone hand, the diversity of its role-players and initiatives allows for a wide varietyof ideas and initiatives and a ﬂexible and quick implementation of activities, eachof which adds speciﬁc value to the area’s competitiveness. On the other hand,the spontaneous character of the approach runs the risk of producing a range ofunconnected and sometimes even contradicting initiatives, where possible synergiesare not utilised sufﬁciently, and where momentum fades due to the lack of longer-term orientation. In order to maintain the positive dynamic of an LED process over time, effective

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Toolkit for Local Economic Development Page 131management mechanisms and structures are required. Following the systemic logicof the LED approach, this structure cannot be set up comprehensively and ad hocat the beginning, but must grow out of the process and the local systems. The taskof LED management is to cope with the increasing complexity of successful LEDprocesses in a way that creates ongoing and long-term opportunities for the localsystem and its different role-players to participate in and beneﬁt from a vibrantlocal economy. Although there might be different institutional models for buildingan efﬁcient and effective management structure for the local LED process overtime, the fundamental rule to be kept in mind is that all actor groups buy-in and feeladequately represented. Accordingly, the challenge foridentifying appropriate institutional All groups should buy-in and feelarrangements to manage LED adequately representedprocesses is to create an institutionalframework for equal partnership, ﬂexible co-operation mechanisms and unrestrictedprivate initiative. Effective LED management must be able to fulﬁl the following core functions:• Coordinate and harmonize the different initiatives• Promote concerted efforts• Enable joint decision making on the basis of joint consultation• Facilitate the development of a longer-term perspective• Guarantee sustainability to the process, including the ﬁnancial sustainability of the different support mechanisms. There is no simple answer to what institutional set-up is best for fulﬁlling thesefunctions. The best institutional structure is the one which optimally reﬂects thelocal context and the speciﬁc requirements of the process at a given time. Differentmanagement principles have a speciﬁc importance at different steps of the process.The inclusion of stakeholder groups which is as broad as possible is of vitalimportance at the beginning of a process especially where there are fragmentedpatterns. In a more dynamic LED process and with the existence of a certain level ofsocial capital, the frequent communication and cooperation around the managementof the process might be concentrated in a more specialised management body, withregular feed back loops to and from the wider LED community, in order to increasethe professionalism of LED management. Regardless the speciﬁc phase or context of an LED process, the following listreﬂects the general features that characterize a successful management structure ofa multi-stakeholder LED process:

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Page 132 Toolkit for Local Economic Development• The management structure reﬂects the multi-stakeholder character of LED and builds on a high level of commitment and buy-in from all stakeholders groups• The management structure is embedded in extensive local, regional, national (and international) networks• The LED management staff is highly professional and accepted by the LED community• Effective LED process management tools are developed and introduced• Existing LED planning and management tools and institutions (such as IDPs or LED forums and committees) are included and combined in the LED management structure• Mechanisms are in place to swiftly and effectively solve potential conﬂicts between different stakeholders.What are promising strategies and processes?In line with the principle of “form follows function”, the task of setting upinclusive management mechanisms for an LED process is not to just create anotherorganisation. Many times, the establishment of new organisations underminesthe dynamism and spontaneity of LED processes and fails due to the lack of thesocial capital that is necessary to ﬁll such a structure with life. LED facilitationshould therefore abstain from imposing complex management structures withoutthe necessary prerequisites in place, and without taking into account existingstructures. Nevertheless, LED interventions should envisage the establishment of amulti-stakeholder management system from the very beginning. This involves thefrequent interaction of the core facilitator with all different stakeholder groups – asopposed to a consultant who only interacts with Local Government as they ﬁnancehis/her intervention. In the longer run, the task of LED facilitation is to bring thedifferent LED vehicles together and to combine their roles and tasks in a way thatbest utilises the local capacities. Strategies to develop such LED management mechanisms and structures mustcombine a number of processes:Identiﬁcation and Mobilisation of Key ChampionsLocal champions are persons or institutions who take the lead on certain issues andare acknowledged by a wide range of role players in fulﬁlling this role. Often they areofﬁcially mandated, but their motivation can also be a result of personal dedicationand identiﬁcation with the issues targeted. In many cases, the mandate or personalmotivation does not cover the whole LED process, but speciﬁc issues or functionswithin it. LED facilitation can help to identify, clarify, align and combine thesefunctions. Visualising and sharing the functions, mandates and motivations is an

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Toolkit for Local Economic Development Page 133important step both for improving the existing process management and for preparingthe ground for more complex and holistic management structures. This can best beachieved via structured discussions, where all relevant champions exchange anddiscuss their views on how the process management can be continuously improvedand what structural arrangements and institutional cooperation mechanisms shouldbe developed for the longer-term management. Institutional mapping exercises canbe a useful tool for the task, and often the best and most motivated champions havealready shown during the process.Selecting Options for Management Structure/sIn line with the results of this clariﬁcation and discussion process, LED facilitationcan develop a number of options for formal institutional arrangements and speciﬁcmanagement mechanisms. As mentioned above, there isn’t one ideal patternto follow. Also, this structure does not have to be comprehensive and holistic:Facilitating partnerships between institutions on certain issues and clarifying rolesof existing and functioning institutions should always have priority before designingcomprehensive institutional models that require major restructuring. In general, themain facilitation task in this context is to help ﬁnding adequate answers of howto balance permanent versus temporary institutional structures and issue-focussedversus holistic arrangements, and to assess costs and beneﬁts of institutionalmeasures of restructuring. In order to achieve this balance, three types of institutional arrangements – andtheir combination - can be generally considered, and the existing LED managementstructure should mirror and systematise these accordingly:• Platforms, forums or arena for consultation, negotiation and joint decision- making• Professional management units (agencies, ofﬁces, secretariats) for providing information, concepts, documentation’s to the management• Issue-focussed temporary task teams for coordinated implementation of action programmes. These institutional structures differ in their purpose and thus in the role theycan play in LED management. Platforms aim at reaching agreement between asmany relevant role players as possible on crucial issues, necessary action andrelated responsibilities. They are set up to promote better mutual understandingof role players and help to strengthen a common regional identity (‘social capital’formation). Professional management units identify appropriate problem solutions,related strategies and opportunities on the basis of proper regional analysis,professional inputs and international experience. They ensure that the LED process

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Page 134 Toolkit for Local Economic Developmentis steered and managed in an effective and transparent manner. Finally, task teamsare in charge of the smooth coordination of programme implementation betweenprivate and public role players. Allowing for such a threefold structure not only guarantees management ﬂexibility,but builds extensively on existing institutions such as project teams, LED forums orcommittees and parastatal support institutions.Capacity Building for Management BodiesEach of these bodies needs a clear deﬁnition of its purpose, tasks, members and chairs,accountability and reporting structure, communication strategy. Organisationaldevelopment (OD) interventions are necessary (including performance frameworksfor staff). Building personal capacity via management training, study tours,horizontal exchange with similar bodies etc. can support these organisationaldevelopment processes. Providing useful tools and approaches for speciﬁc tasks:Ensure and streamline communication ﬂows.An important element of professional LED management is a successful knowledgemanagement and communication strategy. Many LED initiatives have faded dueto the failure of the core management to feed back and market outcomes of theprocess and to report important decisions to LED role-players and the wider publicaudience. Promising strategies to keep the wider stakeholder range “in the loop”are:• Ensure regular LED process coverage in public local media. The LED co- ordination unit has to ensure that necessary information about LED initiatives, relevant events, success stories etc. is complied and disseminated to the media.• Compile focussed periodic newsletters (e.g. on economic trends, on public spending, on science, research & education, legal and statutory information etc.) for LED stakeholders and specialists. In order to increase the relevance and attractiveness of this information, it is important to transport this information in a user-friendly manner and with a clear local area focus.• Organise public workshops or topic days on issues which are subject to public and LED related decision-making processes.• Ensurethat there is documentation of reports on LED-related initiatives and action programmes.Develop mechanisms for conﬂict mediation.Conﬂicts are part of multi-stakeholder processes, as LED is about decision-makingand action between partially competing, diverse and (in South Africa) historically

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Toolkit for Local Economic Development Page 135separated sectors of society. Conﬂictsare especially likely if decisions have All stakeholders share common widerto be taken about limited opportunities interestsand limited resources. If unmanaged,these conﬂicts can disrupt the LED process. Negotiating the different interests andmediating these conﬂicts is an important task of the overall LED management. Thebasis for managing these conﬂicts is the understanding of all stakeholders that theyshare wider common interests, and that additional opportunities and resources existwhich can only be tapped and exploited by co-operation. Successful conﬂict mediation is based on the creation of social capital via identifyingcommon interests by creative visions and a common regional identity, identifying“win-win-options” related to combined efforts and the clustering of competitiveactivities, out of which the mutual understanding is developed that is necessaryfor acceptable and sound compromises. Nevertheless, conﬂicts may emerge whichcannot be resolved without applying the tools and skills of professional mediators.These can sometimes be found within the community on a volunteer basis or haveto be hired from consulting ﬁrms.Carry out professional analysis.Local level analysis is an important ingredient for long-term strategy buildingand planning. Structured analysis with regard to trends, potential, threats etc. isspeciﬁcally important when looking at the bigger picture and should be more thanjust a summary or aggregation of local-level analysis. Local analysis rather shouldbe seen as a focussed analysis of issues which are common to all or most locationsin an area or city and issues which are interrelated between different locations(e.g. rural-urban linkages). Thus, regional issues for regional analysis and regionalplanning are usually cross-boundary issues which reach out across several municipalboundaries. Typical topics where a regional focus and structured regional analysis is of highimportance are• Higher-level and more specialised facilities and services (e.g. higher education) which cannot be offered on local level,• Regional transport infrastructure,• Management of wider-scale environmental systems (coastal areas, mountain areas, water catchment areas, game reserves, etc.). In places where regional planning and management instruments are used by public

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Page 136 Toolkit for Local Economic Developmentsector (e.g. the district IDPs in South Africa), the result of these analyses should bemade integral part of the preparation and use of these. (30) In order to build processes that will lead to increased impact, LED processesshould consider:• How vital it is to be inclusive• Have sound and competent structures• Communicate openly and regularly• Undertake thorough and professional analyses of the local economy Some principles of impact assessment should be incorporated through all stagesof LED process:• Impact assessment should be integral from inception to audit• Focus on socially sustainable development• Build social and human capital in local community• Strengthen democratic and inclusive processes• Focus on intended consequences and ways to turn these around• Consider alternatives to planned interventions• Consider potential improvement measures when there are negative or unintended consequences• Local knowledge, experience, and cultural values should be incorporated into the impact assessment along with scientiﬁc methodsSource:(30) Local and Regional Economic Development: Towards A Common Framework for GTZ’s LED Interventionsin South Africa, Anja Rücker, Gabriele Trah, 2006, unpublished

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Toolkit for Local Economic Development Page 137 Key Questions on M&EThe ﬁrst set of questions is aimed at determining whether the LED instrument,project, tool or activity is appropriate. This is known as “instrument veriﬁcation”.The following are instrument veriﬁcation questions:• Does the instrument, tool or project create jobs?• Does it have spin-off effects to other ﬁrms, such as indirect beneﬁts?• Is the LED initiative the most efﬁcient way of achieving the desired results? The second set of questions is aimed at determining whether the outcomes ofthe LED project are appropriate to the local context. This is known as “outcomevalidation”. The following are “outcome validation” questions:• Has the project resulted in the increased number of jobs?• Are outcomes addressing the key social and economic problems in the locality?• Do outcomes deal with the constraints of the sluggish economy?• Are there different outcomes for the different parts of the local community?• Do local disadvantaged groups beneﬁt from the project? The third set of questions is aimed at assessing the long-term social anddevelopmental impact of the LED project. This is known as the “social impact”.The following are “social impact” questions:• Do the outcomes of the project contribute to the development of society as a whole?• Do the outcomes reduce inequality in opportunity or income?• Is there increased participation by marginalised groups within the community as a result of the project?• Are local choices for the local residents increased?• Are there any negative societal consequences, such as crime and pollution?

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Page 138 Toolkit for Local Economic DevelopmentExamine your municipalities LED system for monitoring and evaluation. Writedown ideas on how your systems can be improved ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Toolkit for Local Economic Development Page 139 CHAPTER 7 FUNDING THE LED PROCESS Financial mechanisms for different types of local economic development projects

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Page 140 Toolkit for Local Economic DevelopmentWe start this chapter by reﬂecting on the ideas which can be generated on needs andpriorities for building the local economy in which you live. The table below summarises the possible areas in which development programswould take place. The column on the right lists the types of ﬁnancial mechanisms,services or institution which could be used to ﬁnance the programs. Projects and Programmes Financial Instrument / Institution Basic Infrastructure Internal municipal sources, MIG, DBSA Bulk Infrastructure Bulk contributions, DBSA Industrial Sector Development Critical Infrastructure Fund, (DTI), Building Competitive Advantage Customised Sector Incentives (DTI), IDC Transport and commercial infrastructure Public-Private Social and Cultural Infrastructure Municipal Internal Finance, MIG Financial Services for Largeand Medium Investment and Retail Banks, Private Equity, Enterprises Stock Exchange Industrial Innovation Venture Capital Import and Export Promotion DTI (TISA), PDCs Financial Services for the Unbanked Wholesalers Housing Finance MFIs Micro and small enterprise ﬁnance Savings and Credit Coops Village BanksMIG = Municipal Infrastructure GrantDBSA = Development Bank of South AfricaDTI = Department of Trade and IndustryIDC = Industrial Development CorporationTISA = Trade and Investment South AfricaPDCs = Provincial Development CorporationsMFIs = Microﬁnance InstitutionsMunicipal Infrastructure Grant (MIG)The MIG is administered by the Department of Provincial and Local Government.It is a grant which is intended to increase provision of and improvements toinfrastructure for poor households. It is to supplement the funds available tomunicipalities. The MIG can be used for a wide range of infrastructure needsincluding bulk infrastructure for community needs, sports and recreational facilities,as well as water and electriﬁcation. As the MIG is intended to supplement municipal funds, reporting will take placeas part of the overall capital budget of municipalities.Critical Infrastructure Fund (CIF)The CIF is a cash incentive to encourage the development of critical infrastructuretowards building the economy. The types of projects applying should thus buildindustrial competitiveness, create jobs, support strategically important economic

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Toolkit for Local Economic Development Page 141activities, and extend the geographic spread of economic activities. The Department of Trade and Industry will fund up to 30% of such specialinfrastructure. The qualifying projects could include transport systems, electricity,water and sanitation, power supply and telecommunications.Development Bank of Southern Africa (DBSA)Having started as an infrastructural support bank, the DBSA now ﬁnances andsponsors programs and projects formulated to address the social, economic andenvironmental needs of the people of southern Africa in improving their quality oflife. The Bank adheres to the principles of sustainable development. A recent transformation at the Bank saw the institution moving away from beingsolely focused on development ﬁnance and becoming a key national developmentinstitution having a threefold role as ﬁnancier, advisor and partner. The DBSA isone of ﬁve development ﬁnance institutions in South Africa. The others include theLand Bank, National Housing Finance Corporation, Khula Enterprise Finance andthe South African Microﬁnance Apex Fund.Strategic Industrial Projects (SIP)The key objective of the SIP program is to attract industrial investments (local andforeign) to South Africa that serve to upgrade industry and create employment.Qualifying sectors include manufacturing, information technology and research anddevelopment in engineering and the natural sciences. SIP provides tax allowancesover a four year period. There is a detailed point scoring system for qualifyingcriteria.Export Marketing and Investment Assistance Scheme(EMIA)The objective of the EMIA is to compensate exporters for part of the cost ofdeveloping export markets. This would be available for developing export marketsas well as to recruit new foreign direct investment into South Africa.Productive Asset AllowanceThis rebate is designed to provide incentives to use locally built vehicle platforms.Small Business DevelopmentThe website of the Department of Trade and Industry lists 21 different supportprograms for small businesses. These include the overarching training, loanprograms and loan guarantees. In addition, there are a wide range of sector speciﬁcprograms for agro-industries, textiles, manufacturing and tourism.

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Page 142 Toolkit for Local Economic DevelopmentThe Enterprise Organisation (TEO)TEO administers a wide range of different incentive programs to promote enterprisedevelopment of all sizes: The Small and Medium Enterprise Development Programme (SMEDP) investsup to R3 m per annum in businesses that will generate wealth, create employmentand develop entrepreneurs. The Foreign Investment Grant provides support to international companiesinvesting in new machinery to establish projects in South Africa. The Grant fromthe DTI can be provided in the ratio of 1:5 in favour of the investor. The Competitiveness Fund provides incentives for innovation and technology, aswell as improving market access through ﬁnancial support and qualifying businessservices for manufacturing enterprises. The Sector Partnership Fund is designed to increase competitiveness. The DTIwill provide 65% and with the partnerships 35% support can be used for preparationand execution of marketing and production-related projects. The Skills Support Programme will give proportional grants to recipients of theSMEDP incentives to be used for preparing the work force. The DTI will provideup to 50% of the training costs and 30% of the wage bill. The BBSDP aims to support black owned businesses which have won tenders andneed training and mentorship to support them in the tender performance. Large Budget Film and Television Production Rebate Scheme will provide taxrebates and rebates in production expenditure for qualifying productions. There areseven eligibility rules which must be satisﬁed to qualify for these.Sourceshttp://www.dplg.gov.za/http://www.dti.gov.za/

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Toolkit for Local Economic Development Page 145Do you think the incentive programmes are sufﬁciently suitable and directedtowards the range the needs in your municipality as you understand them?_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Which incentives would consider using and why?_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Page 146 Toolkit for Local Economic Development Glossary of LED TermsAppraisal: This is the examination of the project to identify its strengths and acceptabilityin terms the objectives and criteria set. This is one of the stages followed when a donor ordepartment is assessing whether to provide funds for a project or programme. It checkswhether the project is feasible on the ground, that the objectives set are appropriate andthat costs are reasonable.Brownﬁelds: is a general term used for sites that have been developed in the past that mayor may not be contaminated. Sustainable economic development strategies encourage thebeneﬁcial reuse of these sites, even though this may be more expensive than building ordeveloping (new, to date undeveloped) greenﬁeld sites.Business incubators: is an economic development tool primarily designed to help createand grow new business in a community, within a speciﬁc building or location. Businessincubators help emerging businesses by providing various support services such asassistance with: developing business and marketing plans, building management skills,obtaining capital and access to more specialized services. They also provide ﬂexible spaceto rent, shared equipment and administrative services in managed workspace.Business retention strategies: are systematic efforts designed to keep local companiescontent at their present locations within the city area. Strategies include helping companiescope with changing economic conditions, addressing new markets and even assisting withinternal company problems.Business start-up support: includes the full range of services available to people startingin business for the ﬁrst time. Initiatives include: training, business advisory support, businessnetworking and mentoring and ﬁnancial assistance (grants, loans, interest rate subsidiesare traditional methods and a more innovative approach to ﬁnancial support is to try andattract as much private sector investment rather than public sector).Clusters: An industry cluster is a grouping of related industries and institutions in an areaor region. The industries are inter-linked and connected in many different ways. Someindustries in the cluster will be suppliers to others; some will be buyers from others; somewill share labour or resources. The important thing about a cluster is that the industrieswithin the cluster are economically linked, they both collaborate and compete and are, tosome degree, dependant upon each other; and ideally, they take advantage of synergies.Community Economic Development: CED is not divorced from LED. Often a particularcommunity within an area will undertake speciﬁc projects to increase their competitiveness.The methodology is often the same as in LED.Community: An identiﬁable grouping of persons sharing similar qualities/ characteristicsin a deﬁned areaDevelopment: Sustainable and integrated social, economic, environmental, spatial,infrastructural, institutional, organisational and human resources upliftment of a community,aimed at: a) improving the quality of life of its members with speciﬁc reference to the poorand other disadvantaged sections of the community; and b) ensuring that developmentmeets present needs without compromising future generations’ ability to meet their ownneeds.Developmental (local) government: (Local) government committed to working withresidents and groups within the community to ﬁnd sustainable ways to meet their social,

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Toolkit for Local Economic Development Page 147economic, and material needs, and improve the quality of their lives (The White Paper onLocal Government).Entrepreneurial training: are programs that provide guidance and instruction on businessbasics (such as accounting and marketing) so that businesses improve their chances ofsuccess.Export development services: Export assistance programs can help businesses todiversify their customer base, expand operations and become more proﬁtable. Exportservices include: assessing company capacity for exporting; market research; informationservices (on exporting, trade regulations, transportation, etc.); international lead generationand trade shows/exhibitions or promotional marketing trips.Feasibility addresses whether the project objectives can really be achieved.Feasibility study: It is very similar if not the same as an appraisal. The scale of the projectwould decide the extent, depth and size of the study. The process would question whetherthe proposed project is well-founded and if it is likely to meet the needs of its intended target/ client group. The study should design the project in full operational detail. Taking accountof all policy, technical, economic, ﬁnancial, institutional, management, environmental,socio-cultural and gender related aspects. The study should provide investors/ donors/departments with sufﬁcient information to justify acceptance, rejection or modiﬁcation.Financial sustainability requires identiﬁcation of and improved access to a range ofsources of funding. This would include innovative fundraising plans, implementing cost-recovery and income generation activities and forging public and private partnerships toensure long-term survival.Foreign direct investment (FDI): FDI is investment that is attracted from abroad. It canmean either greenﬁeld investment (i.e. investment in building new facilities on hithertoundeveloped sites) or portfolio investment (i.e. buying into an established business). Inwardinvestment means nearly the same. However it could include investment from within yourcountry as well as from abroad.Forward strategy: are arrangements to continue the life of projects after initial projectfunding stops. Sometimes described as an exit or succession strategy. This should beestablished at the outset of all projects that are likely to need ongoing capital or revenueresources after the initial period of establishing the project.Greenﬁelds: refers to factories and ofﬁces being built on land that has hitherto not beendeveloped. Also greenﬁeld investments also imply that facilities are designed and built forinvestors, rather than the investor buying a facility already built.Growth node: is a physical location where industry and/or commercial development isdeliberately directed; done either to reduce growth pressures elsewhere in the city or toredistribute growth within a city.Hard infrastructure: includes all the tangible physical assets that contribute to the economyof a city. For example, transport infrastructure (roads, railways, ports, airports), industrialand commercial buildings, water, waste disposal, energy, telecommunications etc. Seealso soft infrastructure below.High road techniques: stress the need to make more efﬁcient use of resources andinvest in processes, technological innovation and employee skills. It views labor as animportant commodity and skill enhancement as a crucial targeted investment. It entails the

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Page 148 Toolkit for Local Economic Developmentmobilization and upgrading of local resources and the maximization of local strengths andadvantages to balance relatively higher wage rates.Indigenous businesses: refers to local businesses, usually those that have developed inthe community. Increasingly, the term refers to all businesses in an area whether they are‘locally grown’ or not.Local Economic Development: An approach by which local people continuously worktogether, and with other stakeholders, to achieve sustainable local economic growth anddevelopment that brings improved quality of life to all.Local: Refers to a geographically deﬁned space that coincides with the spatial extent oflocal government (as deﬁned by Municipal Demarcation)Low road techniques: promote area competitiveness through lowering production costs,especially wage rates; this is not a sustainable approach.Mobile manufacturing (or service sector) investment: is where manufacturing (orservice) companies have a wide choice of location choices. Consequently they are in verystrong negotiating positions when it comes to choosing where to locate their businesses.Municipal area: This is the demarcated geographic space under the jurisdiction of a localgovernment institution.Municipality: The geo-political entity within government that is responsible for themanagement of a local area.One-stop business service centres: are facilities where business persons can go toobtain advice and support to help them establish and expand their business. Sometimesthese centers also issue licenses and permits needed by businesses to start-up, operateor expand. These centers improve the local business environment by reducing the numberof separate agencies and ofﬁces a business may need to approach for advice or to applyfor various licenses and permits. They save public and private time and improve efﬁciencyas a result.Organisational sustainability occurs when the structures are connected to sources oflearning. In addition, regular evaluations of the internal structures and operations takeplace to ensure relevance, ownership and personnel effectiveness.Programme sustainability occurs when stakeholders feel that the services they arereceiving are of sufﬁcient importance and value that they are willing to take responsibilityand ownership for them. Thus communities may take responsibility for programmemanagement from donors when they have realised the beneﬁts to themselves.Resource base sustainability occurs when an organisation understands the importanceof and need for an alternative resource base, develops a diversiﬁcation plan andsuccessfully implements it. As needs grow in face of rising unemployment and increasingsocial problems the importance of ﬁnancial and resource base sustainability is becoming agreater challenge in South Africa.SMEs: is the acronym for ‘small and medium sized enterprises’. There is no deﬁnitivedelineation between a small and medium sized business. As a general reference, small isoften from 5 to 20 employees, medium from 20 up to 200. Businesses with fewer than 5employees are usually called micro-enterprises. This is a guide only.Soft infrastructure: relates to the less tangible aspects of LED such as education andtraining provision, quality of life infrastructure such as park, leisure and library services,housing, business support, business networking and ﬁnancing services etc.

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Toolkit for Local Economic Development Page 149Stakeholders: are the individuals and groups who have an interest in the issues in hand.They normally represent their own interests as stakeholders.Supply chains: are the products and processes that are essential to the production of agood or service. For example, to produce frozen ﬁsh, the supply chain inputs will extendfrom ﬁsh catching, handling, processing, and freezing to packaging, storing and distribution.These are all elements of a supply chain. Holistic LED strategies will try and capture asmuch of the higher value end of the value chain in their area. In this case ﬁsh processing,packaging, storing and distribution will be adding value and therefore be seen at the higherend of the value chainSustainability refers to the long or medium term continuation of an organisation, project orprogramme. The question of sustainability should be viewed from four different viewpoints,namely: programme, organisational, ﬁnancial and resource base sustainability.Sustainable employment: Secure employment able to survive normal competitivepressures and the poverty of families in the area.

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Page 150 Toolkit for Local Economic Development LED ResourcesSA Government & associated sourcesA Co-operative Development Strategy for South Africa. Department of Trade & Industry(January 2004)A National Framework for Intergovernmental Relations in South Africa. Work in Progress: NoStatus. Department of Provincial & Local Government and Governance and AdministrationCluster (March 2004)Assessment of the Local Economic Development Fund. Department of Provincial andLocal Government (2003)Broad-Based Black Economic Empowerment Act (2003/4)City of Johannesburg, 2002: Jo’burg 2030, JohannesburgDamane, W., 2002: Better, smarter, together, Sisebenza Sonke, August, 11-23 availableat www.dti.gov.zaDepartment of Provincial and Local Government (2004) New urban realities – Overview ofurban challenges facing South Africa. Unpublished. 16 September 2004Development Planning Indaba Report. Department of Provincial & Local Government (May2004)Department of Environmental Affairs and Tourism, no date: Socio-Economic Impact ofPoverty Relief Funded Projects, DEAT, Pretoria.Department of Public Works, 2004: Http://www.dpw.gov.zaDepartment of Trade and Industry, 2003: South Africa’s economic transformation: a strategyfor broad-based economic empowerment, available at www.dti.gov.zaDPLG, 2001: Supporting Municipalities for Local Economic Development, DPLG, Pretoria.DPLG, 2003: Problem Statement for the National Local Economic Development PolicyInitiative, DPLG, Pretoria.DPLG, 2004a: CMIP, http://www.dplg.gov.za/html/progs/cmip.htm 16 June 2004.DPLG, 2004b: The Municipal Infrastructure Grant Programme, DPLG, Pretoria.DWAF, 2002: Annual Report, DWAF, Pretoria.Election Manifesto – A People’s Contract to Create Work and Fight Poverty. African NationalCongress (ANC) (2004)Erwin, A., 2002: Making a difference: an introduction to an integrated approach to small,medium and microenterprise (SMME) development in South Africa, Sisebenza Sonke,August, 3-9, available at www.dti.gov.zaGOVZA, May 2004: State of the Nation Address, http://www.info.gov.za/speeches/sotn2004.htm, 7 June 2004.LED Discussion Document. LED Policy Technical Committee. Prepared for dplg andSALGA joint EXCO (October, 2003)LED Policy and Strategy Paper Proposal. LED Policy Technical Committee (February,2004)

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Toolkit for Local Economic Development Page 151LED Policy Proposal – Refocusing Development on the Poor. Department of Provincial &Local Government (February, 2002)Micro-Economic Reform Strategy. Department of Trade & Industry (2003)Mufamadi, S., 2003: An Overview of Rural Development and Urban Renewal in SouthAfrica, Unpublished speech, DPLG, Pretoria.National Small Business Act (1996)National Spatial Development Perspective. The Presidency (2003)Patel, Y (2004) Addressing the macro-spatial economy, provincial growth and developmentand developmental local government. Presentation to the National Growth seminar. 19October 2004Proposal for the Development of an LED Facilitation and Monitoring Unit. LED PolicyTechnical Committee (October, 2003)Report on Study Tour of Municipalities. Portfolio Committee on Provincial and LocalGovernment, National Assembly (April 2003)SACN, 2003: SA Cities and the National Economy, SACN , Cape Town.SACN, 2004: State of the Cities Report: 2004, SACN, Cape Town.Sigcau, S., 2003: Public Works’ Contribution to Human Resource Development and theEmployment Strategy, Parliamentary Media Brieﬁng, 18 February.South Africa, Republic of 1995: National Strategy for the Development and Promotion ofSmall Business in South Africa, Department of Trade and Industry, Cape Town.The White Paper on Local Government. Ministry for Provincial & Local Government(formerly Ministry for Provincial Affairs and Constitutional Development) (1998)Towards a Ten Year Review of Government. The Presidency (2003)Two Parallel Economies: Challenges of Socio-Economic Development in South Africa.Statement of the Government of South Africa (July 2003)Working for Water Programme, 2000: Annual Report, DWAF, Pretoria.International & national referencesAcioly Jr., C. 2001: Reviewing urban revitalization strategies in Rio de Janeiro: from urbanproject to urban management approaches, Geoforum, 32, 509-520Adato, M. and Haddad, L., 2002: Targeting poverty through Community-Based PublicWorks Programmes: Experience from South Africa, Journal of Development Studies, 38,1-36.Andersen T.M., Moene K.O., Endogenous Growth, 1993, Blackwell Publishers,CambridgeArmstrong, H. and Taylor, J. 2000: Regional Economics and Policy, Blackwell, Oxford.Berry, A., von Blottnitz, M., Cassim, R., Kesper, A., Rajaratnam, B. and van Seventer, D.E.,2002: The Economics of SMMEs in South Africa, Trade and Industrial Policy Secretariat,Johannesburg.Blakely, E.J., 1994: Planning Local Economic Development, Sage, Newbury Park.Bloch, R. and Daze, S., 2000: A review of the South African Local Business Service Centre

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Toolkit for Local Economic Development Page 157The following documents are available on request from the University ofNaples’ “CIRCLE” (Centre for International & Regional Cooperation forLocal Economies): circle@unina.itAkundi Krishna M., Cluster-based economic development, part 2: an overview of growththeories and conceptsAkundi Krishna M., Regional Development Agencies and Social Regeneration, 2002Amin A., An institutionalist perspective on regional economic development, 1998,Bramanti A, From Space to Territory: Relational Development and Territorial Competitiveness,1998Cappellin R., Knowledge and innovation networks, and territorial knowledge management,2000,Canzanelli G., From community development to sustainable socio-economic development,2003Canzanelli G., Overview and lessons learned on Local Economic Development, HumanDevelopment, and Decent Work, 2001Eurada, Regional development agencies: an overview about their organization andmanagement, 1998Humphrey J., Schmitz H., Governance and upgrading: linking industrial cluster and globalvalue chain research, 2000OECD, The Local Dimension of Welfare-to-Work: An International Survey, 1998Robson B., Peck J., Holden Adam, Regional Development Agencies and local regeneration,2000